Starting from the stories related to investors making fortune to the questionable legality of cryptocurrency, there has been quite a buzz around the globe about cryptocurrency for quite some time now. Understanding the concept of cryptocurrencies in depth has always been a tough task. Investing your hard earned money without having a fool-proof knowledge about it is quite a risk if you are planning to test your fate.
While there exist tremendous opportunities in the form of entirely new market, understanding the potential of cryptocurrency is important if you are looking forward to investing in it. So here is Beginner’s 101 on cryptocurrency to help you understand it.
The best way to introduce you to cryptocurrency will be with the reason behind its origin and the problems that it is meant to resolve.
Do you remember the recession period that the global economy suffered from in the late 2000 and early 2010s? One could easily recollect the impact it had on every individual’s life. From market meltdown, many companies being shunned down and 8.8 million jobs being cut; this was the biggest economic disaster that the world faced in almost a century.
This crisis had an impact in Indian market leading to the collapse in stock prices as never before.
The Sensex fell from a closing peak of 20873 on January 2008 to around 8000 in October-November 2008.
Why did this happen?
While the policymakers claimed that several factors would have triggered the crisis, the main and immediate reason behind it was the excessive control and power concentrated among few senior executives of the top US banks who exploited the deregulation of federal policies. It started with subprime(high risk) lending market in the US and ended with the full-blown international banking crisis. Highly renowned “Big Three” (credit rating agencies) came under scrutiny for their role in rewarding “AAA rating” to these sub-prime mortgage bonds which were downgraded to “junk” status by 2010 resulting in loss of hundreds of billions of dollars.
There are downsides to implicitly trusting banks, as the 2008 financial crisis showed ~ Balaji Srinivasan
One of the big problems we had during the financial crisis was the intermingling of banks and holding companies and complex securities. ~ Steve Mnuchin
Can this happen again?
The economists say — Yes. And this time it could be worse.
So, don’t you think you trust your banks way too much?
What is the largest financial institution that you trust the most with your monetary exchanges? Most of us will say a bank. But what if your most trusted bank that safeguards your money and related records get hacked?
What if you can make transactions without any dependency on a central authority?
What if it doesn’t matter whom you want to transfer money?
Cryptocurrency in nutshell allows you to
“Send money directly to anyone, anytime and anywhere in a complete anonymous manner”
So, What is a Cryptocurrency?
Satoshi Nakamoto introduced a groundbreaking concept of virtual currency known as Bitcoin as the first ever cryptocurrency to the world. Recently, on October 31st, 2017, Bitcoin celebrated its 9-year birthday with its price rising from $1 to around $6383 on its 9th anniversary since origin. Call it electronic cash or digital currency, cryptocurrency is a peer-to-peer money transfer protocol, completely decentralized and secured using cryptography.
Here are a few things that will help you understand cryptocurrency in a better way:
- Democratic: Cryptocurrency, being a P2P payment system allows the users to transfer the value without the involvement of any third party. This has been made possible with the use of blockchain technology. We will learn more about it in our upcoming article.
- Secure: The whole phenomenon of cryptocurrency relies on encryption using cryptography which makes it secure. The transactions that take place are recorded on a common ledger and linked with previous transactions using blockchains, which can’t be reversed or modified once written and thus, preventing double-spending.
- Global: Since it is completely decentralized and not regulated by a local government, it destroys the boundaries fixed by traditional currencies. This currency could be used in order to make any sort of transaction in any part of the world.
- Anonymous: Cryptocurrency transactions are made on users public address which is nothing but a long alphanumeric string making any sort of identification nearly impossible.
How is cryptocurrency created?
Money creation is a process which is regulated by banks and government. The value of your traditional currency is decided based on several factors such as inflation/deflation, government policies, supply/demand, import/export ratios etc. While in India, RBI and the Government of India has the authority of printing currency notes, similarly, in other countries, the process of money creation and supply is regulated by the banks and the government.
A cryptocurrency is also a form of currency created in electronic format. In the start, the currency is bootstrapped with some amount created by the developers themselves. Once currency starts gaining popularity, exchange mechanisms are built to allow the users to buy it against other currencies which could be either be a fiat currency or another cryptocurrency. As these currencies are driven by mutual consensus, people who are commonly known as “miners” validate the open transactions which are then rewarded with newly created cryptocurrency. Don’t worry if it is feeling too heavy on your brains, we will cover this in more detail in upcoming articles.
Why invest in cryptocurrency market?
According to an estimate, CNBC explains that if you would have invested $1000 in August 2010 in cryptocurrency market, it would have a worth of whopping $50 Million in August 2017.
If this fails to grab your attention, then nothing can.
Since the value of cryptocurrency is decided based on the number of users and miners, the market is ripe when more and more people are looking forward to investing in cryptocurrency market. However, the prices of top cryptocurrencies (like bitcoin, ethereum, ripple, litecoin) are already hitting high, there are many other cryptocurrencies in which you can invest in order to make out most profits.
The market is all set to grow exponentially with new investors showing interest in ‘the next-generation gold’. While the future of international business lies on cryptocurrency, there is no harm in trying your fate in the cryptocurrency market and make exceptionally good returns out of it.
Is Cryptocurrency safe?
Not all the cryptocurrencies are safe. Shocked? Yes, there are many cryptocurrencies in the world, around 1000 to date. Unlike investment avenues, cryptocurrencies are unregulated by any authority. However, the value of cryptocurrency is determined on the basis of several factors. While the stats claim that cryptocurrencies such as Bitcoins have shown up to a 750% rise in price in a year, there are currencies that are coming to an end.
It is always advised to do some research before you invest in cryptocurrency trading. For your rescue, we are coming up with a whole set of articles to help you understand cryptocurrencies, in and out.
How to invest?
Exchange platforms: Similar to stock exchange platforms, there are several platforms such as koinok, zebpay, unocoin, koinex, bittrex, cex, poloniex and others where you can trade for your traditional currencies like Rupees, US dollars, Euros, etc. in order to receive a cryptocurrency.
Initial Coin Offering(ICOs): Crowdfunding has become an accepted form of receiving funding where start-ups are creating their own coins and offer tokens in form of coins. You can invest by purchasing the tokens of a particular start-up venture.
Mining: You can also earn cryptocurrency by mining or micro-tasking without any need to exchange it for your traditional currency. Well, that is quite a bit down the technical road. We will learn about it in our next article.
Cryptocurrency is the next biggest revolution after the ‘dot com’ revolution. It is definitely set to change the world.