It’s been a year since ‘Cryptocurrency' started in India and the Supreme court declared it as “not illegal” though unregulated, last March in 2020. Various start-ups since then have come up to deal with cryptocurrency, such as CoinDCX, Unocoin, Tracxn, etc.
People have started gaining more and more interest in it but end up jumping into the world of cryptocurrencies without knowing what it is and how it actually works. Rest assured this article will help you get a brief insight into it. So, let's get started.
What is Cryptocurrency?
Cryptocurrency is a digital currency or virtual currency that is based on a code secured by cryptography controlling a huge generation of units of currency and verification of transactions for the transfer of funds which makes it impossible to counterfeit or double-spend.
Many such currencies are decentralized networks that are based on blockchain technology. The account keeping of these is done in a distributed manner in which one cannot alter the order of transactions.
It is money created by the masses, for the masses and controlled by the masses with one definite feature that is, they are generally not issued by a central authority and are immune to government interference or manipulation.
Cryptocurrencies have always faced criticism for reasons like use for illegal activities, rate volatility exchange, vulnerabilities of their infrastructure, they threaten the nation-state as cryptocurrency and income tax cannot co-exist together, the transactions are not anonymous and insecurity is kept on the sideline since people can buy and cash out with ease in the conventional financial sector, etc.
However, on the other side, they also have been praised for their divisibility, portability, transparency, the purchases are discreet, especially those of bitcoin; provide peer-to-peer focus where users from anywhere around the world can send or receive payments to or from anyone, etc.
There have also been many online payment gateway systems for the users and their coins anywhere, where they have Internet access. Some of them include:
1. Protege (free)
2. Pay bills
3. Overlay
4. Xapo
5. Apron, and more.
Fiat Currency Vs Cryptocurrency
FIAT currency is centralized, i.e it is issued by a government and is not backed by a commodity such as gold. Its value is derived from supply-demand relationships and the stability of the issuing government. Most modern paper currencies are fiat currencies, such as the U.S dollar, euro, and other global currencies.
Fiat currencies come with a lot of disadvantages, that is inflation - printing currency at one’s will without the knowledge of the poor and gullible, just like the demonetization that took place overnight.
Even to transfer funds with the help of fiat currencies across borders, permission from governments is required in case huge fees need to be paid. This lacking characteristic of “sound money” is filled mostly by cryptocurrencies which is a great advantage in itself.
Cryptocurrency also plays an essential role as one does not need to worry to trust a third party and it’s all thanks to blockchain technologies.
How Does Cryptocurrency Work?
There are more than 10,000 different cryptocurrencies that may go up and down in value. Some cryptocurrencies need to be purchased while others can be bought by paying with bitcoins or another cryptocurrency.
To purchase them what one would need is called a “wallet”. It is an online app to hold proof of your cryptocurrency (digital cash) just like a traditional wallet that holds paper currency. To access the wallet it generally requires one to create an account on an exchange and transfer real money to it to buy.
The wallets are significant as they are required to make the many exchanges for your transactions to be in control. Most of them are password protected and offer other security features too, such as two-factor authentication and encryption. WazirX and Unocoin are among the most popular cryptocurrency trading exchange platforms in India.
To read on the types of wallets for various exchanges click here.
Should You Increase Your Cryptocurrency or FIAT?
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| Source - ChipIn |
This is the most important part when dealing in the world of cryptocurrencies and most people may often be confused about it. The basic answer is ‘Never invest in something you don’t understand or cannot handle’.
Cryptocurrency and its world of exchange are vast. Time will never be enough to understand it all and with the government being unsure about it, could be a huge risk, a trick that can be played anytime and would blow you off in one go.
One major reason why people invest in it and its demand grew rapidly is because it could act as a hedge to protect fiat currencies and equities. After all, unlike them, cryptocurrencies are not impacted by inflation and act as an offer to an alternative to investing gold, yet another preferred investment.
If you have it all to the risk and the patience to remain invested for a long-term period, exploring the space and investing may not be a bad idea. Hence, you should ensure to conduct adequate research before investing and note it is not illegal in India and there are no laws to prohibit individuals from buying or selling these coins.
Conclusion
Cryptocurrency and blockchains are still very new technologies and people all over the world will take time to get used to them. They could be uncertain and potentially disruptive at any point in life. Nevertheless, over the next few years more global standards such as these will definitely be leading the way towards a more seamless digital global economy.
If you are a beginner in this field and want to understand each detail in-depth, here’s a book that could help - The Basics of Bitcoins and Blockchains: An Introduction to Cryptocurrencies and the Technology that Powers Them
Written By - Umme-Aiman
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