Cryptocurrency is a digital currency replicating fiat money but doesn’t require any reliance on any bank or a central government agency. Transactions made through it are maintained and distributed by a computer-backed public ledger, such as a blockchain. The transactions can take place from all corners of the world without the associated hassles of physical money. Cryptocurrency investments can be used to buy houses, land, or even intellectual property. The payments are made with the additional security of a decentralized system that does not collapse at a single point of failure. Unlike fiat money, crypto’s supply can be speculated on through a predetermined algorithm.
The currency is operated via cryptography to encrypt information like private keys. These private keys are linked to the amount of crypto a person holds on the blockchain, providing a certain amount of security and protection against probable hacks and scams.
HOW DOES CRYPTOCURRENCY WORK?
As mentioned earlier, the cryptos run on a distributed public ledger known as the blockchain, which is held and maintained by the currency holders. The blockchain records are absolutely transparent and immutable, meaning it can’t be tampered with or modified by anyone, including the administrators.
The coins are generated via a process called mining, and users also get to collect the coins through online brokers. Miners are required to solve mathematical puzzles on specially equipped computer systems to be rewarded with bitcoins in exchange.
TYPES OF CRYPTOCURRENCY
Broadly, cryptocurrency is of two types: coins and tokens.The basic difference is-
- Coins use its own independent blockchain. For instance, Ether operates through Ethereum.
- Tokens, however, operate with the help of another blockchain’s infrastructure. For instance, tether is hosted on the Ethereum blockchain.
SOME POPULAR CRYPTOCURRENCIES
There are various types of cryptos to start with, the most popular being Bitcoin. Similarly, there are Ethereum, Tether, Dogecoin, etc. with varying values.
- BITCOIN– Popular as the world’s first cryptocurrency, Bitcoin has the largest market capitalization as of April, 2024.There 21 million bitcoins around the world.
- ETHER- It is an uncapped coin implying that an infinite number of coins can be created. Smart contracts are also part of the Ethereum blockchain that are automatically executed when specific conditions are met.
- TETHER- This coin is designed to achieve a less-volatile price and is linked to an external asset, most probably, US dollars.
- SOLANA- Backed by the Solana platform, the network can perform bulk transactions in very less time. It is mostly preferred by investors eager to trade quickly.
- XRP- It is the native token for XRP ledger. The ledger requires the client applications sign and transactions to be sent to the ledger servers. The servers then compare the transactions and decide if they are candidates for entry into the ledger. These transaction candidates are sent to the validators, who assist the servers into getting the transactions right and record the ledger versions.
STORING CRYPTOCURRENCY: TYPES OF WALLETS
The cryptocurrency coins are stored in digital wallets, classified as hot and cold wallets.
- Hot wallets are connected to the internet and as a result are less secure and risky but user-friendly. They are generally used for daily transactions. They are easy to set up and give easy access to the users. These include Desktop wallets, mobile wallets, web wallets.
- Cold wallets store the currency offline without internet connectivity. They are convenient for long term holding as they are more secure. They are immune to hacks and suitable for HODLers. For instance, hardware and paper wallets are cold wallets.
With the growing number of businesses accepting Bitcoins or other types of cryptocurrencies and the emergence of the crypto trade as a good source of income, people, especially youth, are increasingly looking forward to it’s benefits. However, before investing, one must be aware of the pros and cons associated with the investment.
EASY WAYS TO INVEST IN CRYPTOCURRENCY
Here are some of the most easy ways for cryptocurrency trading–
- The most simple way to invest is buying the coins of your choice, which will give you the independence to invest whenever you like, transfer coins between wallets according to your wish etc.
- One can also buy crypto ETP i.e. exchange traded products, that allows you to own the value of a currency without actually buying the coin. The ETPs can be brought through brokerage accounts, trusts, IRA s etc. However, there are limitations like only being able to trade during the traditional market hours. There are also cryptocurrency related ETF ( exchange traded funds) that can be categorized as stock- based ETFs that exposes one to the stocks of the companies that operate in the cryptocurrency industry and the Future-based ETFs, that exposes one either to the future of one type of cryptocurrency or to a basket of currencies.
- One can also consider buying individual stocks of the companies within the crypto industry like that of mining companies, banks assisting the cryptocurrency companies etc.
- Investing in a cryptocurrency Roth IRA provides one with the advantages of a Individual Retirement Account (IRA) while investing in cryptocurrency and is definitely a good option.
- You can also mine the cryptocoins and act as a validator and subsequently hold the coins or exchange it for another currency.
ADVANTAGES
Due to its host of different advantages, cryptocurrencies have successfully gained its popularity. Reaping the wide ranging benefits of cryptocurrency, a large number of people are increasingly becoming eager to get into the cryptocurrency market.
- With the aim of independence from third parties, cryptocurrency is decentralized. Thus, it is not controlled by the government or banks, devolving their interference in inflating its value, as is the case with fiat money. It also prevents the risk of any third party monopolizing it.
- The transactions made via cryptocurrency are relatively faster than traditional modes of transactions, especially transactions across international borders that get stuck for 2–3 days. This makes cryptocurrency a compelling option.
- One of the most important advantages of cryptocurrency is its availability, even for the non-banking population. With an internet connection and a cryptocurrency wallet, you can get access to crypto coins all around the clock.
- Cryptocurrency is backed by blockchain technology, which protects it from being manipulated, changed, or tampered.
- The earlier concern of cryptocurrency not being entirely mainstream is now getting smothered, as an increasing number of financial institutions and businesses are accepting and offering cryptocurrency into their services. With its growing popularity, a significant number of people believe that soon cryptocurrency will enter the mainstream finance market, acting as a parallel to fiat money.
- It is not at all a difficult task to invest in cryptocurrency, and data shows that it is generally easy to invest as compared to traditional modes of investment.
DISADVANTAGES
However, there are also a certain number of disadvantages that often make one contemplate investing in crypto, but being aware of the cons will make one’s experience convenient in the crypto world.
- Since cryptocurrency doesn’t allow banks or governments to intervene as third parties, the rules regarding it are constantly evolving around the world. Although it acts as a homogenous currency around the world, the varied regulations imposed by governments impact the ways in which various people get to use or access their crypto. This often leads to uncertainty and volatility.
- Often, the trading platforms that users choose do not provide much security. Additionally, some new coins may pose greater risk than the popular ones. There is also a lack of insurance or responsibility for stolen or lost crypto. This is the reason why meticulous research before investing becomes important.
- There are also some technical issues, especially when one stores the coins privately. In that case, the sole responsibility for the coins lies with the individual, and any issue with the private key will cause the hard drive to crash. In the event that a virus corrupts one’s wallet, the crypto funds are entirely lost.
CONCLUSION
Keeping these in mind, with thorough research and being well-informed about the market, one can exploit the potentialities of cryptocurrency in a digitized world. Thus, the scope for cryptocurrency is huge and widely varied. Accepting the risks and developing a sound knowledge of the market can definitely give valuable returns. It is definitely a great source of income as well as putting one’s savings sitting in the bank account to use.
