Cryptocurrency

Cryptocurrency has become a buzzword in the financial world, with its influence continuing to grow. As a form of electronic or virtual currency, it operates independently of traditional banking institutions, relying instead on blockchain technology. Unlike physical money, cryptocurrencies are entirely digital, which has attracted the attention of investors, regulators, and the general public as they explore this shift towards digital assets. 

What is cryptocurrency? 

Cryptocurrency is a form of digital or virtual money that uses cryptography for security. It operates on a decentralised network, typically through blockchain technology, making transactions transparent, secure and free from control by central authorities like governments or banks.  

How does cryptocurrency work? 

Cryptocurrency works with a technology called blockchain. A blockchain is a public, decentralised database that contains all the transactions that have taken place with a particular cryptocurrency. Every transaction is recorded in a block that is connected to the previous block, hence the name chain. This makes the process transparent and eliminates cases of tampering or fraud. 

When a transaction is made, the miners, who are the participants in the network, check and authenticate it by solving complex mathematical problems. After the authenticity of the transaction has been confirmed, it is recorded on the blockchain. For this, miners are incentivised with cryptocurrency to keep the network up and running and secure. 

Bitcoin and Ethereum are cryptocurrencies that are based on decentralised systems, which implies that there is no single party, like a bank, that regulates them. This kind of peer-to-peer system enables the transactions to take place fast, securely and in most cases at a cheaper cost as compared to the banking systems. 

Types of cryptocurrencies 

Bitcoin 

Bitcoin is the first and most well-known cryptocurrency. It works like "digital gold" and is primarily used as a store of value or an investment. Bitcoin was introduced in 2009 by an anonymous individual or group under the name Satoshi Nakamoto. Unlike traditional currency, there is a limit of 21 million Bitcoins that can ever exist, which helps maintain its value. Think of Bitcoin as the foundation or “parent” of all other cryptocurrencies. 

Altcoins  

Altcoins are all cryptocurrencies that came after Bitcoin. Some are direct "forks" (versions) of Bitcoin with minor changes, while others, like Ethereum, are built from scratch. Altcoins can have different uses compared to Bitcoin; for example, Ethereum is a platform for running decentralised apps (dApps) rather than just a currency. 

Tokens  

Tokens are a specific kind of cryptocurrency that operates on existing blockchain networks, usually as part of decentralised apps (dApps). Unlike Bitcoin or most altcoins, tokens don’t have their own blockchain. They are created on top of another blockchain (like Ethereum) and can be used in specific applications, such as for rewards or as in-app currencies. 

What are the uses of cryptocurrencies?  

Make payments quicky  

Cryptocurrencies let you send money anywhere in the world quickly. For example, Bitcoin can be used to pay for services or transfer money to family abroad in minutes, without using banks. 

Make investments   

Cryptocurrencies like Bitcoin and Ethereum are seen as a new way to invest, hoping their value will increase over time. Just like gold, some hold onto their coins to sell them for profit later. 

Enables easy contracts  

Some cryptocurrencies help create "smart contracts", which automatically do what they promise. For example, when buying a house, the money can be automatically transferred once all the conditions are met. 

Facilitates transactions overseas  

People use cryptocurrencies to send money to other countries more easily, without worrying about exchange rates or high bank fees. 

Allows to get hands-on digital collectibles   

Cryptocurrencies also let you own and trade digital items, such as art, music or sports highlights, through NFTs (non-fungible tokens). 

Helps track products  

Companies can use cryptocurrency technology to track where products come from and ensure they are real, like verifying luxury items or important medicines. 

How to buy and store cryptocurrencies? 

To buy cryptocurrency in India, you can follow these steps: 

1. The first step is selecting a reliable cryptocurrency exchange. There are many popular platforms in India that allow cryptocurrency trading. 
2. Once you choose a platform, sign up for an account. You will need to verify your identity by submitting documents like your PAN card, Aadhaar card and completing the KYC (Know Your Customer) process. 
3. After account verification, link your bank account or use UPI to transfer funds to your exchange wallet. Most exchanges support INR, making it convenient for Indian users to buy crypto with Indian Rupees. 
4. Once your wallet is funded, choose the cryptocurrency you want to buy. You can enter the amount you want to invest and execute the trade. The exchange will display transaction details for you to confirm. 
5. Then, you will need a digital wallet to store your cryptocurrency securely. Options include "hot wallets" (online) and "cold wallets" (offline) for added security. 

When it comes to cryptocurrencies, it’s essential to stay cautious and informed. This is because they are very much prone to volatility, implying that cryptocurrency prices can change within a very short time. Therefore, you should only invest an amount that you do not mind losing in the trading process. Security should not be ignored either, you should keep your assets in a digital wallet but use hot wallets for active trading and cold wallets for storage. Due to the current dynamic nature of cryptocurrency laws in India there is little legal recourse thus you need to be up to date with the government policies. Last but not the least, always do your own research and never invest without knowing the cryptocurrency market and its movements rather than just guessing.