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HomeMoneyUnderstanding Cryptocurrency: A Beginners Guide

Understanding Cryptocurrency: A Beginners Guide

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We live in an ever-evolving world. If you think carefully, you will understand that our world has changed significantly in the past 20 years. From landlines to smartphones, from offline to online courses, everything is shifting very fast. This is also true for cash transactions. Instead of keeping money in our wallets, now we make digital payments. 

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After demonetization, every small and large business has opened its gates to online payments. This has benefitted the customers as well as the sellers. Now there is no need to look for changes to make your payment. You can just scan a QR code and pay directly from your bank account. The outbreak of Covid has also influenced our methods of making payments. Minimum contact ensures maximum safety. Thus, everyone is now using digital wallets. 

Like digital wallets, there is also another new thing that is slowly becoming popular among the world of finance. That is cryptocurrency. If you have no clue about this term, do not worry, you are not alone. Most of us are very unfamiliar with their term. In this article, different aspects of cryptocurrency will be discussed for your clear understanding. So, if you are eager to explore the concept of cryptocurrency, keep reading.

Cryptocurrency: What is it?

The meaning of a cryptocurrency is hidden in its name. Crypto means something encrypted and currency is the means to buy something. So, cryptocurrency is a type of digital currency that is encrypted. This type of money is easily portable and very volatile. Some of us confuse bitcoin with cryptocurrency, but they are slightly different. 

Bitcoin is actually a type of cryptocurrency, but many other types of cryptocurrencies are available in the trading market. This is more like a share market where these currencies are traded. Cryptocurrencies work on blockchain technology. Because this technology is decentralized, cryptocurrencies are not in control of central authorities or the government.

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Cryptocurrency: How do they work?

To understand the working of cryptocurrency, you need to understand the blockchain system. The blockchain system is basically a distributed ledger, and a network of computers enforces it. All transactions are recorded here. No third party gets involved in this system. 

Cryptocurrency: What are the types?

According to a market survey, there are more than 10,000 types of cryptocurrencies. All cryptocurrencies can be widely divided into two types;

  • Coins

Coins have their separate blockchains. Apart from bitcoins, others are called Altcoins.

  • Tokens

Tokens are always built on already existing blockchains. Initial Coin Offering offers them. 

Ethereum, Waves, Bitcoin, Ripple, Dogecoin, Peercoin, Litecoin, are some of the most popular cryptocurrencies available in the market. So, you can slowly start investing in Cryptocurrency and see the advantages yourself.

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Cryptocurrency: Is it legal?

Whether cryptocurrencies are legal or not in India has always been a confusing topic. In 2018, RBI issued a circular that instructed all financial organizations to stop trading with cryptocurrency. Then a petition was filed against this circular. The supreme court of India declared that RBI could not control the usage of virtual currency for trading. 

As a result, that circular became invalid. Because a legal tender in India does not provide cryptocurrency, RBI cannot regulate or prohibit it. So, we can say that trading with cryptocurrency is legal in India. But we cannot make any purchase using this currency in India because it is not legal tender itself.

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Cryptocurrency: Pros and Cons

Everything has some good and bad sides. All the positive and negative sides of cryptocurrencies are mentioned below;

Pros

  • You can do free transactions using this currency. There is no maximum or minimum amount. Moreover, you will also see less merchant involvement in this kind of trading.
  • When you use cryptocurrency for trading, everything is done neutrally and stays transparent.
  • Because of the encryption, this digital money is very safe to use.
  • Cryptocurrency is a decentralized system, so there is no involvement of the government.

Cons

  • When you trade in virtual mode, there is always a chance of hacking. A hacker can get a lot of money just by hacking a few wallets.
  • When you use cryptocurrencies, you can be charged with some hidden costs. These currencies are subjected to exchange rate differences. So due to this exchange, the investor has to pay some extra amount. 
  • Because there are no regulations for cryptocurrencies, you may become a victim of scams.
  • The prices fluctuate very much.

Conclusion

So, these are the features that you should know about cryptocurrencies. Hope your idea about cryptocurrency and how it works is clear now. In spite of all the risks, trading in cryptocurrency is rewarding. You can invest in cryptocurrency depending on your risk-taking ability. But after seeing its increasing popularity, we can say that it is the next big step in the world of finance.

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