What is crypto currency? What is the hype about it?! How is crypto currency relevant for a common individual? What is meant by the phrase “Crypto is the gold of digital economy”? All these questions and so many others must come to your mind because of all the attention crypto currency is getting these days. This blog will answer to these questions in the simplest way possible, while equipping you with facts. To understand the concept of crypto currency, you don’t need explicit knowledge of either technology or finance. But a basic understanding of crypto currency can take you a very long way.
What is Crypto Currency?
Bitcoin, a form of cryptocurrency, was introduced by Satoshi Nakamoto as an alternate currency, but it is important to know that Bitcoin and cryptocurrency are not the same things. Bitcoin is only one type of cryptocurrency that is in digital circulation. Cryptocurrency, on the other hand, has all the properties of physical currency, like paper or metal currency, only that it exists only digitally and transactions can be taken out without the involvement of a financial institution. The tangible currency of a country is regulated by its Central bank that guarantees the validity of the same. But in the case of cryptocurrency, it is completely decentralized. This means the transactions take place between two individuals directly without any middleman. These transactions are executed through blockchain technology, verified by professionals called “miners” and are recorded in a public account called Distributed Ledger. This ledger is accessible by every system in the crypto network, without disclosing the identities of those transacting. Hacking this ledger is practically impossible.
Block chain technology, also known as Web 3.0, may require a deeper technical knowledge. But putting in the simplest of words, block chain is a sophisticated and new age technology that records, transmits and allows interaction on information, while maintaining superior security. Every transaction that takes place, initiates through a new block and gets added into the chain. These transactions are irreversible and cannot be deleted from the algorithm or the chain. Miners are the ones that “mine” these blocks and are responsible to verify the transactions & accuracy of block chain and ensure its security. Through block chain, each and every transaction can be tracked without compromising the identity of those transacting. Every crypto currency has its own unique block chain.
Salient Features of Crypto Currency
Now that you’ve understood the basic meaning of crypto currency, let’s move on to the distinctive features of it. First of all, crypto currency is intangible and is only available in digital form. It can be used as an alternate currency, just like legal tenders like Indian Rupee, US Dollar, Japanese Yen, etc. Another feature is that, it can be directly transferred between two individuals. Meaning that, crypto currency is fully decentralised and cannot be regulated by government or financial institutions. Transactions through crypto currency are recorded in a public account, like mentioned in the introduction, which is openly accessible. This aids transparency and ensures the security of the user data by keeping their identity concealed. Domestic or International, transactions through crypto take place within very small time duration and at almost free of cost, which makes it even more attractive. In addition to being used as an alternate currency, it is more actively being used as an investment asset. The value of crypto currency is highly volatile, because of the lack of awareness and limited supply. It can be bought on portals called “Crypto exchange”.
Crypto Currency, as an Alternate Currency
When it was launched, crypto currency was intended to be used as an alternate currency, like paper currency, only digitally existent. The main motive of use is to eliminate the control of moderators and regulatory bodies over one’s money. The idea has been to create an alternate digital economy that operates parallel to the physical economy, only more transparent and reliable. Unlike the centralised currency, the supply of digital currency cannot be artificially created as per requirement. Correspondingly, crypto currency is desired to be brought to such a level where it can be used to purchase or sell anything and everything in place of or as a substitute of physical currency. With every activity in the economy shifting digital, a digital currency is only meant to prepare the people for a completely digital ecosystem.
Crypto currency, as an Investment Asset
In today’s time, crypto currency is not being popularly used as an alternate currency but as a store of value and investment class asset. Like gold, or any stock market instrument, it is being used to diversify one’s investment portfolio, hedge the risk and as an avenue of investment to get appreciated future returns. The logic behind this is that the supply of crypto currency is limited and it has great potential of growth. It can be stored in any cold or digital wallet and later, can lead to wealth maximisation. This is evident from the fact that one Bitcoin, whose value in 2010 was around Rs. 2, is worth around Rs. 43 Lakhs today. In spite of the volatility, investing in crypto currency is highly secure because of its transparency & deregulation and helps as a measure of risk diversification.
What is the Hype?
The value of cryptocurrency, not only Bitcoin, but others like Ethereum, Ripple, Litecoin, etc., has witnessed a great jump in the recent past decade. What is the reason for such hype? The reason is that it is highly desirable in the coming digital age, where all the operations have shifted online. It would not be untrue to say that cryptocurrency is the future of economies. The realization that it is an incredible avenue of investment, considering the possibility of great value appreciation further levers its appeal. The sudden rise in its beginning years made it look like a bubble, so consecutively, rendering it dangerous. But with time, the acceptability of cryptocurrency has improved.
Points of Caution about CRYPTO CURRENCY
While dealing in crypto currency, it is important to gain sufficient knowledge before going all out. The currency is volatile to scales that may not be desirable to every investor. Also, be audient towards the pump and dumps. Every crypto currency, like Ethereum, Bitcoin, Ripple, Litecoin, etc., has their unique block chain. As a consequence of the current hype, there may be many fraudsters that develop a currency whose block chain is identical to those already existing, called “token”, with the motive to extract investment and flee. It is imperative to invest in crypto currency which has a long history, are trusted and has good network effects. Strong reluctance can be seen from Government against the use of crypto currency because of it being decentralized and a novel concept, hence, aids the insecurity of centralized institutions. It is also advised by the crypto experts to not invest in the crypto currency through loaned funds. Nevertheless, it would be appropriate to say that crypto currency is at its move and it’s here to stay.