Introduction
If you had invested $100 in Bitcoin a decade ago (INR 6600 in 2015), you could have been a millionaire by now. Owning BTC assets worth 32,851.81 USD (INR 28,44,360.63). And the value is increasing with each passing day.
Despite the hype, a large number of people still find it difficult to understand what cryptocurrency is and how it works. If you are one of them, then you are at the right place. Because things will change after you read this blog. In this blog, we will explore everything about cryptocurrency – the history, technology behind it, popular cryptocurrencies, and much more. So, let’s begin.
Meaning and Origin
Cryptocurrency, also known as crypto, is a decentralized virtual or digital currency that uses cryptography for secure financial transactions. Cryptocurrencies exist only in digital form and are stored in digital wallets. With cryptocurrency, individuals can make secure, fast, and low-cost transactions without the need for intermediaries like banks.
Bitcoin is the first ever cryptocurrency introduced in the world by an anonymous developer or developers with the pseudonym Satoshi Nakamoto between mid-2008 and early 2009. On 22nd May 2010, Laszlo Hanyecz, a programmer from Florida, purchased two Papa John’s pizzas with 10,000 Bitcoins. This is said to be the first-ever Bitcoin transaction. To celebrate this significant day, May 22 is celebrated as Bitcoin Pizza Day. At the moment, it was valued at $41, but today it’s worth lakhs, making it the most expensive pizza ever purchased.
How Cryptocurrency Works?
Step 1 - A user initiates the transaction by sending a request to the network.
Step 2 - The request is broadcasted to a network of nodes (computers) on the blockchain, a public ledger that records all transactions of a particular Cryptocurrency
Step 3 - The miners on the network verify the transaction by solving complex mathematical equations (cryptographical equations) and in return, they receive a certain unit of cryptocurrency as a transaction fee.
Step 4 – Once the transaction is verified and confirmed by the miner, the information is updated on the blockchain, and the transaction becomes irreversible.
Popular Cryptocurrencies
1. Bitcoin
Being the first of its kind, Bitcoin has maintained its position as one of the most popular and valuable cryptocurrencies. Apart from having the first mover advantage, another factor that led to the rise in its popularity and value over the years is limited supply. 21 million is the maximum number of bitcoins that can ever be mined. No additional bitcoins will be generated when the Bitcoin supply reaches its upper limit. This makes it an anti-inflationary investment option.
2. Ethereum
Ethereum is the largest and most widely used blockchain platform after Bitcoin. Its token cryptocurrency, Ether (ETH), is the second-largest digital currency by market capitalization. Ethereum’s DeFi (Decentralized Finance) ecosystem aims to replace traditional financial intermediaries like banks and brokerages with secure, transparent, and accessible peer-to-peer transactions and smart contracts.
3. Ripple (XRP)
Ripple (XRP) was developed by three engineers—David Schwartz, Jed McCaleb, and ArthurBritto in the year 2011. Ripple's XRP coins differ from other cryptocurrencies because they are already pre-mined by the founders. The total supply is capped at 100 billion units, 20 billion units are held by founders, and the remaining 80% is being circulated in the market. But out of this 80%, 67% units are still held by the founders. The significant holdings of XRP by its founders gives them the power to influence the price and have substantial control over its market value.
4. Tether
Launched in 2014, Tether (USDT) is yet another widely used stablecoin Cryptocurrency. It is less volatile than other cryptocurrencies, as it’s pegged against the US Dollar. However, Tether has faced criticism and controversy surrounding its reserve holdings and lack of transparency. Some have questioned whether Tether truly holds the equivalent amount of US dollars to back its issued tokens, sparking concerns about the stability of the entire cryptocurrency market.
Benefits of cryptocurrency
✅Protection from inflation
Inflation reduces the purchasing power of money over time. But that’s not the case with cryptocurrency, since one can never mint more coins than the upper limit set for a particular cryptocurrency. While Bitcoin has a lifetime upper limit of 21 million coins, coins like Ethereum revise the upper cap annually.
✅Secure
The use of blockchain technology ensures that transactions are transparent & cannot be erased or altered, providing a high level of security for users.
✅Easier transfer of funds
Cryptocurrencies enable fast, easy, and convenient transfer of funds across borders, without the need for intermediaries like banks, making global transactions more efficient and cost-effective.
Drawbacks of Cryptocurrency
❌Highly volatile
Like how every coin has two sides, every investment possesses some kind of risk, and Cryptocurrency is no exception to it. Although it offers high returns, it also involves higher risk as compared to traditional investment avenues. Since Cryptocurrencies are not linked to any fiat currency, their values are highly speculative. Also, there is no uniform regulation governing the cryptocurrency market. All the above factors make cryptocurrency a highly volatile and risky investment
❌Decentralized
Cryptocurrency is not monitored by any government or Central authority. This makes it favorable for certain illegal activities like money laundering, dark web transactions, ransomware attacks, etc.
❌No refund or cancellation
Another major drawback of cryptocurrencies is that they are irreversible. Once a transaction is confirmed on the blockchain, it cannot be cancelled or reversed. This means that if a user sends cryptocurrency to the wrong address or falls victim to a scam, they will not be able to recover their funds.
Frequently Asked Questions (FAQ)
1. Is cryptocurrency banned in India?
Cryptocurrency is not banned in India, but it is not recognized as legal tender. This implies one can trade & invest in Cryptocurrency, but it cannot be used for daily transactions.
2. Where can I buy cryptocurrency?
You can trade and invest in Cryptocurrency once you complete the Know Your Customer(KYC) process on a cryptocurrency exchange. But make sure to choose a reputable & trusted crypto exchange like CoinDCX,or Coinbase etc.
3. What is the minimum amount I can invest in cryptocurrency?
The minimum investment amount can be as low as Rs. 100. However, it can also vary, subject to limits prescribed by various cryptocurrency exchanges.
Disclaimer: Investocraxze does not provide financial or investment advice. Content is for informational purposes only.