The cryptocurrency industry is growing at a rapid pace with Bitcoin, Dogecoin, Ethereum being the buzzwords driving the crypto frenzy these days. Even though the crypto industry is only ten years old, novice investors are drawn to it because they see a quick way to turn a profit.
Unlike the stock market, the crypto market is unregulated, so its value rises and falls every day. Considering the extreme volatility of these digital coins, here is everything you need to know before investing in the cryptocurrency market.
What are cryptocurrencies?
Cryptocurrencies are digital assets that you can use as investments and even for online purchases. It is cryptographically secured, making it almost impossible to counterfeit or double spend.
It should be noted that cryptocurrency does not physically exist, which means that you cannot take a Bitcoin and hold it in your hand. And unlike the Indian rupee, there is no central authority that maintains the value of a cryptocurrency. Instead, these tasks are widely distributed among users of a cryptocurrency through the internet.
Additionally, each cryptocurrency coin consists of a unique program or code line. This means it cannot be copied, making them easy to track and identify as they are traded.
How it works?
Cryptocurrencies are not backed by a central authority such as a government. Instead, they walk through a chain of computers. It is exchanged peer to peer on the web without an intermediary.
Cryptocurrencies are decentralized, which means that no government or bank manages their manufacture, value, or how they will be traded. All crypto transactions are cryptographically secured, which means that it only allows the sender and intended recipient of a message to see its contents.
Is Cryptocurrency Similar To Blockchain?
No. Blockchain is the technology that enables cryptocurrency to exist. A blockchain is a digital ledger of transactions that is distributed across the network of computer systems. Think of it as a great book that shows the whole history of this coin.
To put it simply, it is an information logging system that makes it impossible to hack the system. Each block of the blockchain contains multiple transactions, and each time a new transaction occurs there, a record of that transaction is added to each participant’s ledger.
A blockchain database can store a large amount of information which can be used and viewed by many users at the same time.
But what makes Blockchain unique is that it is not owned by a single person or entity, which makes it more secure and trustworthy. The idea is that because no one controls the blockchain, they can’t take over and rewrite the records.
How can you store your cryptocurrency?
Cryptocurrency can be stored in what’s called a “wallet,” which you can access using your “private key” – the crypto equivalent of an ultra-secure password – without which the owner of the crypto cannot access the currency.
A crypto wallet stores the private keys that allow the user to access their cryptocurrencies, which allows them 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 authorize transfers of these coins to another person’s wallet.
There are different types of crypto wallets available that meet different requirements for security, reliability, accessibility, etc.
What types of cryptocurrency are there?
Bitcoin is the most traded cryptocurrency that everyone is familiar with and talking about, but it is not the only type of cryptocurrency on the market. There is Litecoin, Polkadot, Chainlink, Mooncoin, Shiba Inu, Dogecoin, etc. Currently, there are over 6,000 coins, according to CoinMarket’s cap.
Bitcoin is the most stable coin. As the first cryptocurrency, Bitcoin traded below a dollar. Over the years, Bitcoin has gained a price momentum and topped the market cap by $ 1,000 billion. During this time, investors should explore their options and choose the asset that might best meet their needs.
How to buy cryptocurrency?
Much like the stock market, the crypto market has exchanges or brokers who are its facilitators. These exchanges often charge a fee or commission for each transaction. Some even offer milestone rewards, others as a membership bonus. This policy may differ with each exchange.
Some of the major crypto exchanges in India are – WazirX, CoinDCX, Coinswitch Kuber, and Unocoin – users need to register with their KYC credentials, download the app, and purchase cryptocurrency. These exchanges also help you monitor the value of the cryptocurrency and buy or sell it.
Crypto exchanges depend on investors for the possession of cryptocurrency. This happens when users deposit crypto to sell it and new users come to the exchange to buy it, making it easier to trade.
Cryptocurrency can be purchased on a fractional basis. For example, if you are ready to buy Bitcoin, you don’t need to buy a full Bitcoin (BTC) to own it. You can buy a fraction of a Bitcoin. You can own as little as 0.00000001 BTC. This is the case with all cryptocurrencies.
Can you get free cryptocurrency?
Yes, you don’t have to buy cryptocurrency to own one. You can also earn cryptocurrency by solving crypto equations using computers. This process involves validating blocks of data and adding transaction records to the blockchain.
It should also be noted that some cryptocurrencies like Bitcoin are in limited supply, which means that there is a maximum number of coins that will be in circulation. Others like Ethereum do not have a maximum cap but limit the number of new coins that can be generated each year.
What can you buy with cryptocurrency?
India is slowly opening up to accepting it as a legitimate payment method. There are a few practical issues with cryptocurrency, as it cannot be used exactly for day-to-day transactions. However, there are ways to use your crypto to make payments easier.
Unocoin, a Bitcoin trading site, now allows its users to purchase vouchers from over 90 different brands using Bitcoins. With these vouchers, you can buy Domino’s pizza, Baskin Robbins ice cream, Himalayan beauty and health products, and even Prestige household appliances.
In the United States, retailers like Whole Foods, Nordstrom, Etsy, Expedia, and PayPal now allow people to pay using crypto.
How stable are cryptocurrencies?
In January of this year, Bitcoin climbed to $ 40,000 (around ₹ 29.70 lakh). Continuing its bull run, it hit an all-time high of $ 65,000 (around ₹ 48.27 lakh) towards the end of April. Then in May it took a dip and throughout June it was below $ 30,000 (around ₹ 22.28 lakh). Once again, prices have skyrocketed, and at the time of writing this article the price of Bitcoin is around Rs 51 lakhs.
This shows that cryptocurrencies are extremely volatile. The cryptocurrency market thrives on speculation. Investors place speculative bets that cause a sudden inflow of money or a sudden outflow, resulting in high volatility.
Additionally, the crypto market is seen as a way to generate quick profits. Part-time workers come with the hope of making quick wins, but sometimes when that doesn’t happen, they lose patience and walk away. This recurring involvement and withdrawal contributes to the volatility of digital coins.
Is it legal tender in India?
At the moment, there is no legislature that covers cryptocurrencies in India. But that doesn’t mean that owning cryptocurrencies is illegal.
Meanwhile, India has yet to table the Cryptocurrency and Official Digital Currency Regulation Bill, 2021, which will establish the regulatory framework for the launch of an “official digital currency”, it was due to be presented during the budget session of Parliament, but has taken place as the government continues its discussions with stakeholders. So far, only a few countries have accepted cryptocurrencies as legal tender and the list should be kept small.