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What is Cryptocurrency and how does it work?

We are living in a digital world where everything is heading towards pure digitalization. i.e. Most of our works are becoming  paperless. Even money transfer and investments are paperless. One of such digital payment sector is cryptocurrency.

What is Cryptocurrency ?

  • Crypto currency is a digital money or virtual money. That is money is not available physically and it is very secure.
  • In simple words we can say cryptocurrency is a money exchange process.
  • Most popular example for cryptocurrency is Bitcoin. It is the first ever introduced cryptocurrency.
  • Some other examples for cryptocurrencies are Ethereum, XRP
  • It is not possible to counterfeit or double spend because it is secured by cryptography.
  • It is an decentralised process hence they are not controlled by anyone
  • Cryptocurrencies are tax free and they are not insured too.
  • Government or banks are not responsible for cryptocurrency.
  • Even many countries have banned cryptocurrency.

What is the purpose of Cryptocurrency?

  • The main purpose of cryptocurrency is to reduce the risk involved in traditional currency.
  • It is very easy to use. We can access it anywhere and anytime. All we need is a smart phone and a good net connection
  • In cryptocurrency the power and the responsibilities are in hands of the currency holder.
  • They help in solving real world problems.

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How does a Cryptocurrency work?

It uses block chain technology. It is a very brilliant technology because both the buyer and seller details are viewable to each other and so no broker is needed.

For example if we need to buy a share from a stock market we can do it easily with the help of a broker. We will confirm the exchange order and then we will receive the shares.  We don’t need to contact the seller in person.

The reason for choosing a broker is we don’t know if the seller has the stock or not. This is known as principle of novation.

In cryptocurrency involvement of third person is not needed because all the transactions are stored in a common location and it is viewable. The identity of the person who made the transaction is encrypted.

Blockchain – document that tracks all the transactions.

How cryptocurrency is made ?

  • Most of the cryptocurrencies are made using a process called mining.
  • Mining is nothing but an algorithm. It is the process of adding transaction to the blockchain ledger.
  • Via nodes on the network with the consensus achieved through a proof of system.
  • But not all cryptocurrencies are made by mining. Some currencies are created using various other techniques such as tokens.

Can Cryptocurrency be converted to cash?

The answer for the above question is yes. For example one of the cryptocurrency Bitcoin can be exchange into cash on a crypto exchange.

There are platforms such as coinbase and kraken that helps the users to convert digital money to physical cash.

How safe is Cryptocurrency?

Transactions done using cryptocurrencies are highly secure .

There is a chance of earning huge amount when compared to mutual funds or share market but it comes with a high risk.

Because the volatility of cryptocurrency is very high. Either we earn high return or lose what we have.

Is Cryptocurrency good or bad?

Every coin has two faces, similarly there are both good and bad about investing in cryptocurrency. One should know both the faces before investing. Let us consider only the good side about investing

Returns may be massive and everything is instant. So you can buy or sell when there is a fluctuation in the market very easily.

There is a cold wallet storage option where we can control our own private key. This key helps us to access our coin in the block chain.

What are the problems with Cryptocurrency?

Major problem is cryptocurrency is the lack of regulation.

Next problem is volatility. For example in 2017 cryptocurrency like Bitcoin increased suddenly upto 1000 percentage and then came down.

Another problem is fear about hacking and scams due to the reason of digitalisation.

Is crypto illegal?

It varies from one country to another. In some countries it is legal and some countries have banned it.

Crypto is legal in some of the most developed countries like U.S Japan and U.k

It is also legal in developing country like India but it does not have any regulatory framework . Countries like Algeria, morocco, Nepal, Pakistan and Vietnam have banned it. (Verify crypto news for updated information’s)

Will banks use Cryptocurrency?

Most are the banks are against the idea of cryptocurrencies because it is a treat to most of the traditional banks.

There are also certain types of banks supporting cryptocurrencies and investing in it.

What is the disadvantage of Cryptocurrency?

One of the biggest drawback of cryptocurrency is the security. There are stories where exchanges are hacked and peoples who held coins in those exchanges lost everything.

There are lot of peoples with less experience and knowledge which leads to huge loss.

Since it is fully digitalized there is a technical difficulty such as network issues and so on.

Can you trust Bitcoin?

Yes Bitcoin’s are really safe. If you are ready to take risk and if you are ready for investing then be ready for all kind of high and low.

If no of Bitcoin’s available Is less and no of bidders are very large in number the value automatically increases.

Can you get scammed on Bitcoin?

Yes there is a chance of getting scammed on Bitcoin’s some such scams are

  • Fake ICO’S
  • Social media scams
  • Fraudulent exchanges
  • Imposter websites
  • Scamming emails
Who owns the most bitcoin?

MicroStrategy is a company that holds most bitcoin.

Can a Bitcoin crash?

Yes Bitcoin may crash. But the gains achieved using Bitcoin are higher when compared to the losses.

But a Bitcoin reducing to zero is nearly impossible.

Why we should not use Bitcoin?

  • Highly volatile
  • Lack of knowledge and experience
  • Unregulated space

Conclusion: Know all the ups and downs, before investing into crypto.

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