What Is Cryptocurrency? Understanding Cryptocurrency And Blockchain
Introduction
Have you overheard a conversation between your friends about Ethereum or Bitcoin and nodded along, pretending to understand?
Did it all sound a little cryptic? Do you wish to understand what is Cryptocurrency?
Don’t worry! We will explain cryptocurrency in simple words and ensure that you understand its working principles.
Let’s dive into the rabbit hole of understanding cryptocurrency and mine some knowledge!
Key Takeaways
- Understand Blockchain, Cryptocurrency and NFTs
- Legality of Cryptocurrency
- How to Trade and Invest in Cryptocurrency
Decrypting Cryptocurrency
Let’s tackle the first question — What is cryptocurrency?
Cryptocurrency is a form of digital currency that is generated through a process called mining.
It is the symbiotic outcome of a Blockchain.
It is a form of token/reward given to people who are part of the Blockchain and help verify the data i.e, Miners.
Miners help solve highly complex mathematical problems which increase the safety of the Blockchain and every time a problem is solved, a crypto coin is generated.
Every coin in circulation has been the result of mining, there is no other way to generate a Crypto-Coin. You can only buy existing coins but no one can generate coins like how money can be printed.
This limits the total number of coins in circulation and greatly increases the Cryptocurrency value. To read more about mining read here: Investopedia
This digital currency can only be used for online transactions or for services that accept the currency.
The question may arise in your mind, “They hand out Bitcoins and other cryptos for free just to run a few mathematical problems on your laptop?”
That however would be wildly inaccurate. Understanding the question ‘what is Cryptocurrency?’, therefore, requires an understanding of Blockchain technology.
What is Blockchain?
Blockchain is the next transformative innovation in technology that will change the way data is stored and verified.
Every transaction in a Blockchain can be traced to its original owner, however, the identity is encrypted. Hence, it elegantly maintains transparency and privacy at the same time.
It does so by employing the services of miners who verify data and add blocks to the existing chain.
A group of verified information makes up a block and a series of interlinked blocks make up a Blockchain.
This makes sure that nothing can be falsified. If one were to falsify data on one block, they would have to do so in every subsequent block which is extremely hard (almost impossible).
This makes counterfeiting impossible as every transaction can be traced back to the individual and every mined coin can be traced to the node.
Every computer that verifies data in a Blockchain is called a node, and they are all connected through the chain.
This means that everyone is the regulator and there is no centralized authority like a federal bank or a reserve bank.
Mining however is no easy task as it requires computers specifically set up to solve complex computational problems. They also draw a lot of electricity.
Hence, to successfully mine you need high-end set-ups that make the endeavour profitable.
Also Read: What is Blockchain?
This brings us to the question. How did it all begin? Why are Cryptos like Bitcoin and Ethereum so valuable?
The Boom of Bitcoin
Satoshi Nakomoto is the pseudonymous/ false identity of the creator/creators of Bitcoin. They/he devised the first Bitcoin Blockchain.
Bitcoin had the advantage of being the first Cryptocurrency and hence it is the most sought after and most valuable.
One Bitcoin is now valued at around 62,000 US dollars!
You can use bitcoins or a percentage of it for purchases online, on platforms that accept the currency. The country of El Salvador has already legalised it!
Some predict that this revolutionary currency and its concept will soon make traditional currency obsolete.
The value of a Cryptocurrency is determined by its demand and also the value of the service provided by its Blockchain. Recently, the invention of NFTs has given rise to another valuable Crypto, let’s take a look!
Ethereum and NFTs
The next most valuable Crypto in the market currently is Ethereum. Its price has been driven up by something called NFTs.
NFTs (Non-Fungible Tokens) are tokens that prove unique ownership online.
These items thus become irreplicable. Like every other item on a Blockchain, it can be traced to its origin and hence ownership can be verified.
No one can hack, steal or replicate your NFT!
NFTs can be digital artwork, songs, gifs or even physical deeds to your car, legal documents, and even tickets to a concert!
They can be anything you can think of that is owned by you! NFTs can revolutionise how legal documentation is done.
Read more in-depth about NFTs here: Ethereum.org. Maybe you’ll be more interested if you knew that the most expensive NFT was sold for over 69 million dollars!!
There is one more Cryptocurrency that we need to talk about — Pi.
Pi — The First Mobile Phone Cryptocurrency
A pair of Stanford graduates launched what was to be the world’s first cryptocurrency that can be mined on a mobile device.
Previously the world of cryptocurrency was only accessible to those with capital and access to high-end technology. However, Pi made it possible for users to mine on their Mobile Devices.
Pi however is still in its infancy and currently undergoing tests. People are also worried about the legitimacy of Pi, claiming it’s just another Multi-Level Marketing scam.
All doubts aside, Pi users march on 3.5 million strong with the hope that it is indeed a valid currency. They will also be hoping for the 100$ evaluation that is predicted for a Pi coin by 2025.
If it is legitimate, then Pi will be a game-changer!
The risk/reward graph however encourages one to download the app as it doesn’t ask for any private data or bank details. You are also not asked to invest anything in it.
Let’s tackle the next biggest question surrounding crypto — Is it legal?
Legality of Cryptocurrency
The famous multi-millionaire investor/ shark of the famed show SharkTank — Mr Wonderful, Kevin O’Leary — believes that we must work with regulatory authorities and address their concerns over crypto to speed up the process of legalising it.
Experts estimate that over a Trillion dollars are waiting to hit the market if Cryptocurrencies like Bitcoin and Ethereum are legalised.
So, why is it not legalised yet, even though companies like Tesla motors and the country of El Salvador have officially recognised it as a legitimate form of payment?
Governments are afraid that it undermines the existing institutions like banks and Reserve banks. There is no regulation when it comes to the exchange of Cryptocurrency online.
Lines of credit are governed by the government to control inflation and regulate the flow of money. This however becomes impossible with bitcoin on which sanctions cannot be imposed.
The anonymity of users due to encryption also makes it a method of discreet payment for Nefarious activities. Recently 174,000 BTC was seized in the Silk Road case which was a dark web avenue for illegal drugs and arms.
Taxing cryptocurrency is also a point of debate among policymakers.
How to use Cryptocurrency in India
Currently, according to the Supreme court order that quashed a high court ruling, Bitcoin and other Cryptocurrencies can be traded in India and financial institutions are advised to facilitate it.
In India, cryptocurrency is not recognized as legal tender, however, it comes under the classification of gold and stocks.
We are free to invest and trade in Crypto. Many applications allow you to do so.
Bitcoin however is taxable and read here to understand the methods: The Economic Times
How to Buy/Get Cryptocurrency in India?
The best way to trade for Cryptocurrency in India is to install Apps that help you buy and sell Cryptocurrency.
You need to be over the age of 18, have an Aadhar Card and a Pan Card. It’s the same as any forex trading app.
After your KYC is done you can begin trading.
5 best apps for trading Cryptocurrency in India
- WazirX
- Unocoin
- CoinDCX
- ZebPay
- CoinSwitch Kuber
To know more about these apps read here: 91 Mobiles.com
Best Cryptocurrencies to invest in India
1. Bitcoin
The first-ever of its kind, Bitcoin currently dominates the market. It does undergo fluctuation from time to time. However, it’s at the highest valuation ever currently.
One Bitcoin is valued at 60,330.50 $ or 45,46,271.19 rupees
2. Ether
Driven by the popularity of NFTs, Ether which is run on the Ethereum Blockchain network is predicted to overtake Bitcoin in a couple of years.
It currently takes the second spot in valuation
One Ether is valued at 3,731.03 $ or 2,81,123.78 rupees
3. Binance Coin
Binance Coin or BNB is the best performing crypto of 2021 with prices up almost 90% since the beginning of the year. It’s managed by Binance Exchange which is the biggest Crypto exchange agency in the world
One Binance Coin is worth 464 $ or 35,287.85 rupees
4. Tether
Tether is one of the most stable cryptocurrencies available in the market. Its value is constant around 1 $
One tether is 1.0001 $ or 78.62 rupees
5. Cardano
It’s the next step in Blockchain technology with a Proof of Stake (PoS) model. This ensures lesser energy consumption and hence the currency has seen 55% growth in the previous year.
One Cardano is 2.1609 $ or 172.72 rupees
*All values are as of October 18th, 2021*
Also Read: Cryptocurrency Facts You Didn’t Know!
Conclusion
We have successfully tunnelled through the mountain of knowledge that pertains to Cryptocurrency. Now, we just have to find a way to refine it and put it to good use!
For a technology as vast and transformative as Blockchain technology, we have just scratched the surface and haven’t mined even half of it!
To understand Blockchain better, there are courses available for free.
Refer to this blog to pick out the right course for you: Blockchain Internship
However, you are ready to invest in Cryptocurrency! Just be wary of the risks involved and be ready to take on short-term losses as it can be a volatile market.
However, with the right investments, you could be the next Crypto Millionaire!
Frequently Asked Questions
Can I easily make money by investing in Crypto?
The profits from investments in Crypto can be considered easy money as it comes from market fluctuations. Hence, indeed you can easily make money but you can just as easily lose money (which is more likely if you invest blindly)
Who is the richest Bitcoin investor?
Tyler and Cameron Winklevoss, are currently the richest Bitcoin investors. The twin brothers famous for suing Facebook turned their 65 Million dollar settlements into digital gold by investing heavily in Bitcoin. They both have 3 billion dollars worth in Bitcoin.
Can we cash out Bitcoin?
Yes, third-party exchange brokers like Bitcoin ATMs exchange your Bitcoin for cash at a given rate. You can use services like Coinbase, Binance or Bisq.
Why did Tesla stop accepting bitcoin? Which companies still accept it?
Tesla stated high energy consumption and environmental preservation as reasons to discontinue accepting Bitcoin as payments.
Microsoft, Wikipedia and Shopify still accept it.
Also read: What’s the environmental impact of Cryptocurrency?
