What Is Cryptocurrency? Get All Your Answers Here!
You have probably read or heard about cryptocurrency, a topic on everyone’s radar that continues to make headlines. To many it may seem just like trading stock, so why is it so popular?
A cryptocurrency is a form of digital money. While it is also possible to digitally manage and transfer your traditional currency (such as the U.S. dollar), this is not the same as owning cryptocurrency. What makes cryptocurrencies different is that they are a decentralized and more democratic alternative to government-based money.
The Early Days of Cryptocurrency
The first experiments with cryptographic electronic money date from the 1980s and 1990s but never really developed. In 2008, the first cryptocurrency, Bitcoin, emerged as a way to take power away from government agencies and central banks.
Nobody knows exactly who started it; Bitcoin was created by the first blockchain, an anonymous entity called Satoshi Nakamoto.
Its first units cost very little. In 2010, when one of the first users decided to get rid of his Bitcoins, he exchanged 10,000 tokens for two pizzas. In comparison, at today’s values, 10,000 Bitcoins would be worth more than $450 million!
Without delay, cryptocurrency technology became more and more popular among those looking to try something outside of traditional trading and investing.
What is Cryptocurrency?
In centralized banking and economic systems, governments control the supply of money, printing more when necessary. On the other hand, cryptocurrencies are intangible money that only exists in digital forms, such as tokens. There is a fixed number of each type of cryptocurrency, meaning companies or governments cannot produce more.
A cryptocurrency (or “crypto”) is a form of payment that can circulate without the need for a central monetary authority such as a government or bank. Instead, cryptocurrencies are created using cryptographic techniques that enable people to buy, sell or trade them securely.
Cryptocurrencies can be exchanged for goods and services, though they often are used as investment vehicles.
The most popular cryptocurrency, Bitcoin, has had a historically volatile price. In 2021, it hit an all-time high above $65,000 before falling back.
What is blockchain?
In the simplest terms, Blockchain can be described as a data structure that holds transactional records and ensures security, transparency, and decentralization. You can also think of it as a chain/records stored in the forms of blocks which are controlled by no single authority. A blockchain is a distributed ledger that is completely open to any and everyone on the network. Once information is stored on a blockchain, it is extremely difficult to change or alter it.
Each transaction on a blockchain is secured with a digital signature that proves its authenticity. Due to the use of encryption and digital signatures, the data stored on the blockchain is tamper-proof and cannot be changed.
Blockchain technology allows all the network participants to reach an agreement, commonly known as consensus. All the data stored on a blockchain is recorded digitally and has a common history that is available for all the network participants. This way, the chances of any fraudulent activity or duplication of transactions is eliminated without the need of a third party.
How do I invest in cryptocurrency?
While some cryptocurrencies, including Bitcoin, are available for purchase with U.S. dollars, others require that you pay with bitcoins or another cryptocurrency.
To buy cryptocurrencies, you’ll need a “wallet” — an online app that can hold your currency, which can be accessed by using your ‘private key’—the crypto equivalent of a super-secure password— without which the crypto owner cannot access the currency.
A crypto wallet stores the private keys that give the user access to their cryptocurrencies—allowing one to send and receive cryptocurrencies like Bitcoin and Ethereum. It should be noted that your coins are stored on the blockchain, and the private key is required to authorise transfers of those coins to another person’s wallet.
Some of the top crypto exchanges in India are — WazirX, CoinDCX, Coinswitch Kuber and Unocoin—users have to sign up with their KYC credentials, download the app, and buy cryptocurrency. These exchanges also help you to monitor the value of cryptocurrency and buy or sell it.
How many cryptocurrencies are there? What are they worth?
Top 10 CryptoCurrency:
- Bitcoin ($690.75B)
- Ethereum ($289.81B)
- Tether ($78.31B)
- BNB ($61.55B)
- USD Coin ($48.32B)
- Cardano ($34.97B)
- Solana ($29.14B)
- XRP ($28.75B)
- Terra ($26.28B)
- Dogecoin ($18.10B)
Why are cryptocurrencies so popular?
- fees are very low: When you’re using various other types of online payment options, you’re often going to incur large fees. The very low fees that you have to deal with when using various cryptocurrencies will be a much better deal for you.
- Cryptocurrencies Aren’t Associated with World Governments: This means that cryptocurrencies have the potential to remain stable even when there is turmoil in a specific country.
- There Is Potential for Profit: Lots of people who invested in cryptocurrencies before they got super hot wound up making huge profits. Investors are still making money from cryptocurrencies because the market has not cooled in recent years.
- It’s Getting Easier to Use Cryptocurrency: Using cryptocurrency is getting easier all the time, thanks to more online companies adopting it. You’ll find that more websites are starting to accept cryptocurrencies as payment and this will only become more prevalent in the future. It’s also interesting to note that there are now things such as cryptocurrency debit cards popping up in certain places. This might not be widespread right now but it is something that is very much happening.
- Overall Security Is Important: Using cryptocurrency to pay for things online is a lot safer than many other traditional payment options. If you’re at all worried about cybersecurity issues, then deciding to use cryptocurrency might be a good idea. The security of cryptocurrency is one of the things that has helped it to become so popular over time.
- It’s Easy to Get: In the past, people might have thought of cryptocurrency as some type of shady and unknown entity but it’s become a common thing in many circles now. If you have yet to purchase cryptocurrency, then you’ll find that the process is decidedly simple and customer-friendly.
- It’s Seen as the Future: Finally, you could say that cryptocurrencies are seen as the future of money by many individuals. People who adopt crypto trading and cryptocurrency now are also adopting major technological innovations such as blockchain.
Are cryptocurrencies a good investment?
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable throughout much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again.
This price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?
Are cryptocurrencies legal?
There’s no question that they’re legal in the United States, though China has essentially banned their use, and ultimately whether they’re legal depends on each country.
How do I protect myself?
- Who owns the company? An identifiable and well-known owner is a positive sign.
- Are there other major investors who are investing in it? It’s a good sign if other well-known investors want a piece of the currency.
- Will you own a stake in the company or just currency or tokens? This distinction is important. Owning a stake means you get to participate in its earnings (you’re an owner) while buying tokens simply means you're entitled to use them, like chips in a casino.
- Is the currency already developed, or is the company looking to raise money to develop it? The further along with the product, the less risky it is.
