Cryptocurrencies once again made to the headlines due to the sudden dip of Bitcoin from $65,000 to the $45,000 in April and then finally plunging to $35000 in May, 2021. Now, investing in cryptocurrency is a brainstorming and brave affair. Due to its greater volatility, it is riskier than traditional stock and money markets. But, is cryptopcurrency as tough as it is presumed? The answer is NO. Like any other business, a slight research and investigation on the matter simplifies it.
What is cryptocurrency?
A cryptocurrency is a form of decentralized digital denomination based on a network that is distributed across a large number of computers which allows them to exist outside the control of governments and central authorities across the world. Block chains are an essential component of cryptocurrencies. The term “Cryptocurrency” originate from the encryption methods used to secure the network. The systems of cryptocurrency assure for safe and secured online transactions which are entitled in terms of virtual “tokens,” which are represented by ledger entries internal to the system.
Cryptocurrencies just offer an alternate way to transact money that’s fundamentally different from credit cards, bank transfers, and other common methods of exchange. It accomplishes a monetary system that makes it easier to transfer funds directly between two parties, without the need for a trusted third party or centralized authority like a bank or credit card company. Instead, it requires trust in mathematics and algorithms, thereby trust in technology, who secure transfers by the use of public keys and private keys , elliptical curve encryption and hashing functions. Here, transfers are done with minimal processing fees, allowing users to avoid the huge processing fees charged by banks and financial institutions for wire transfers. Cryptography used in crypto currency today was originally developed for military applications.
What is Blockchains:
Blockchains are the organizational technology for ensuring encryptional integrity of transactional data. Generally, blockchain is a specific type of database. Blockchain technology basically presents a data structure of the online ledger of all the transactions that have ever been conducted. It stores data in blocks which are chained together. Once a block is suffused with data it is chained onto the preceding block, thus making the data chain occur in a chronological order. A fresh data that comes in it is entered to a fresh new block. . Every fresh block made must be checked by each node before being confirmed, thus making it almost impossible to forge transaction histories. Due to the decentralized characteristics of blockchain the data entered is irreversible. For example, in Bitcoin, all transactions are transparently viewed by everyone and one can easily track the Bitcoin to wherever it goes.
Smart contract in Blockchain:
A smart contract is a computer code that is built into the blockchain to facilitate, verify, or negotiate a contract agreement. Smart contracts operate under a number of conditions, which the user first agree to. The terms of the agreement are automatically carried out when those conditions are met.
What is Cryptocurrency mining:
Cryptocurrency mining is simply the process of acquiring cryptocurrencies by solving encrypted equations and algorithms in a computer. Through crypto mining, the fresh data blocks and adding of new transaction records to a ledger, is validated. In other words, mining is a transactional process involving use of computers and cryptography to solve complex functions and record shared data where the entire networks of devices are connected using blockchains.
By mining cryptocurrency, one can earn without having to actually use real money to invest. Crypto Mining operates by rewarding the miner who discovers a solution to a complex hashing problem first. The probability that a miner will be the one to discover the solution is proportional to the portion of the total mining power on the network. For example, Bitcoin miners are awarded with “blocks” i.e.1 MB (megabyte) worth of verified transactions which are then added to the blockchain.
Setting up a mining rig only requires an application-specific integrated circuit (ASIC) or a Graphics processing unit (GPU). A miner actually has to just guess a 64-digit hexadecimal number popularly known as “hash”, first, that is less than or equal to the target hash. As it is just wild guess working, the total probability of digits in each problem is in order of trillions, thus solving it requires great computing power. High “hash rate”, measured in Megahashes per second (MH/s), Gigahashes per second (GH/s) and Tetrahashes per second (TH/s), is what is needed for successful mining.
Although crypto mining is illegal in many countries like Algeria, Egypt, Bolivia, Nepal, Pakistan, Ecuador and Morocco, it is legal in most other countries of the world. China is one of the leading Bitcoin mining.
How to invest in Cryptocurrency:
Investing in cryptocurrency is not as difficult as it appears. It is no rocket science, in fact it quiet similar to creating an UPI or e-wallet. Similar to UPI, you need to create a “wallet “to hold the money. Then you need to create an account on an exchange like Coinbase, Binance or Robinhood to transfer real money to buy or sell cryptocurrencies such as Bitcoin or Ethereum.
One of way for safe investment in cryptocurrency is to never spend more than you can afford to lose. Calculate the effect on your investment if your coin were to fall by 10%, 30% or even 70% overnight and weigh up if you could afford to hold on in the hope that values will rise again, or would you be tempted to sell at a loss.
Topmost cryptocurrency today is the pioneer of the game, Bitcoin (BTC) with price of $36,663.70 as of June 1, 2021 and market capital of $689,652,131,553 ($689.6 billion). It was the very first crypto currency created in 2008 by anonymous Satoshi Nakamoto. The second in the race is Ethereum (ETH) with $2,593.82 and market capital $304,113,290,079($304.1 billion).
Tether (USDT) is up next with $0.9999 price and market capital of $61 billion .Cardano (ADA) has price of $1.71 and market capital of $55 billion. .The famous Binance Coin (BNB) has price of $351.68 and market capital of $54 billion.
Ripple (XRP) with a price of $1.02 and market capital of $47billion is succeeded by Dogecoin (DOGE) is of $0.3175 with market capital of $41. USD Coin (USDC) has market capital of $22.69 billion and value of $1.
Next is Polkadot (DOT) possessing a market capital of $21 billion and price of $22.50 billion. Uniswap (UNI) is with $26.90 price and $15 billion. Bitcoin Cash (BCH) has price of $686.73 and market capital of $13 billion as of the now. The India-based cryptocurrency Polygon (MATIC) has a value of $1.86 and market capital of $11.6 billion.
Is cryptocurrency legal in India?
At present, Cryptocurrencies are legal in India. But our legislature does not have any regulatory framework now. An Inter-Ministerial Committee (IMC), to study and understand virtual currencies, was set up on November 2, 2017. The committee’s report, along with a Draft Bill, brought forth the positive aspect of decentralized -ledger technology and suggested various applications, especially in financial services such as banks and other financial firms.
In 2018, RBI (Reserve Bank of India ) had imposed a ban on banks facilitating this virtual token transactions. The entire crypto-community in India filed a petition against the ban. On March 2020, The Supreme Court lifted the ban. Similar to any other investments, profits made are liable to capital gains tax under the Income Tax Act. Varying on the tenure of holdings ,it can be short term capital gains or long term capital gains.
Cryptocurrency exchanges in India
Cryptocurrency exchanges are online platforms for the exchange of the digital currency with some market valued assets. The world’s first electronic exchange is NASDAQ (National Association of Securities Dealers Automated Quotations). NASDAQ is a global electronic platform for buying, selling and trading securities. Most of the world’s tech-giants, like Apple and Facebook, are listed on the NASDAQ.
Although Indian law and legislature has not been quite kind to cryptocurrencies, global investors have drove into the country’s digital coin ecosystem for its high growth potential due to the bulk cash reserves that global cryptocurrency exchanges hold.
Global exchange giants like Binance and Coinbase have acquired Indian exchanges like WazirX and CoinDCX respectively. Other Indian exchanges that have emerged in recent times are BuyUcoin, BitBNS, Colodax, Giottus and Zebpay among many others.
Future of cryptocurrency
It is proclaimed that cryptocurrencies will soon emerge as an alternative to conventional currencies. Some economic analysts predict that a very huge change in crypto is coming as institutional money enters the market. In the future there is a possibility that crypto will be floating on the NASDAQ, which would add credibility to blockchains .Many says that ,all cryptocurrencies need, is a verified exchange traded Fund (ETF). An ETF would definitely make it easier for layman to invest in cryptocurrencies. Harvard University Professor of Economics and Public Policy, Kenneth Rogoff predicts that the “overwhelming sentiment” among so called crypto-evangelists will rise the total market capitalisation of cryptocurrencies to $5-10 trillion.
Cryptocurrency can also give those developing countries having unstable currencies or financial infrastructures, a more stable currency medium ,which has many applications . Thus, it will also provide a wider network of individuals and institutions that they can conduct business with, both domestically as well as globally.
A cryptocurrency that pursues to become a huge chunk of the mainstream financial ecosystem have to fulfil very divergent characteristics. Firstly, it should be mathematically complex for to avoiding fraud and hacking, yet be easy enough for consumers to understand. Secondly, be decentralized but with appropriate customer security and safeguard. Thirdly, preserve user anonymity without being a trench for tax-evasion, money laundering and other malicious activities. As these are quiet daunting criteria to follow, it is possible that the cryptocurrencies in span of few decade could have attributes that fall in between the heavily-regulated fiat currencies and contemporary cryptocurrencies. Tracing the success story of the pioneer and the leading cryptocurrency, Bitcoin there is little doubt that cryptocurrencies are the fortunes of the future.
Future of cryptocurrency in India
Cryptocurrency being a tech-driven investment, have more than 7 million Indians pumped in over $1 billion into cryptocurrencies, mostly comprising a bulk of youths. Harish BV, Co-Founder of Unocoin, which has user base of 13 lakh Indian said ,“There is an increasing trend of foreign cryptocurrency exchanges investing in Indian cryptocurrency exchanges. It is because India has a population of 1.3 billion that is predominantly young which is seen as tech-savvy and more adaptable to crypto saving,” The median age of investing Indians is between the age group of 28 -35 years.
Slowly but steadily positive sentiments for cryptocurrency is getting synthesized in the country. .The good thing for crypto-lovers in the country is that discussions on the topic is just getting louder even though it is not completely backed by the government. Several MPs have been recently raising the issue of cryptocurrency in the Parliament. Recently in the last week of March 2021, the government made it compulsory for companies to provide transparency regarding investments in cryptocurrencies. The regulation is welcomed by the crypto sector of the country. It is said that this would open the door for all Indian companies to have Crypto on their balance sheets. Sumit Gupta, CEO and Co-founder, CoinDCX, have said that it will bring in a lot of transparency. It will also act as a comfort for Indian companies who are dealing in crypto-assets and were previously confused on how to put them in their records.
In spite of the popular believes that block chain and related technology may disrupt many industries, including finance and law, cryptocurrencies is an effective, secured and profitable monetary transaction system. Cryptocurrencies usually faces criticism for reasons like illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them, but they also shows praiseworthy performance for their portability, divisibility, inflation resistance, and transparency. Due to the benefits of the decentralized structure of cryptocurrencies, investments only require a thorough and deep understanding of crypto-market which would result in much profitable turnovers than regular markets.