A cryptocurrency is a digital asset that utilizes computer code and blockchain technology to operate on its own, without the need for a central party — be that a person, company, central bank, or government — to manage the system.
What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the goods or services that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for cryptocurrency to access the goods or services.
Cryptocurrencies work using a technology called a blockchain. Blockchain is a decentralized technology spread across many computers that manage and records transactions. Part of the appeal of this technology is its security.
Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
- Supporters see cryptocurrencies such as bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable
- Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since over time these banks tend to reduce the value of money via inflation
- Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems
- Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money
How Does Cryptocurrency Work?
A cryptocurrency is a medium of exchange that is digital, encrypted, and decentralized. Unlike the traditional currency, there is no central authority that manages and maintains the value of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet.
Bitcoin was the first cryptocurrency, first outlined in principle by Satoshi Nakamoto, Satoshi Nakamoto is the name used by the presumed pseudonymous person or persons who developed bitcoin in 2008. Paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Nakamoto described the project as “an electronic payment system based on cryptographic proof instead of trust.”
That cryptographic proof comes in the form of transactions that are verified and recorded in a form of a program called a blockchain.
Are cryptocurrencies a good investment?
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
That’s what’s called “the greater fool” theory of investment. Contrast that to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation.
“For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability.”
Some notable voices in the investment community have advised would-be investors to steer clear of them. Of particular note, legendary investor Warren Buffett compared bitcoin to paper checks: “It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?”
For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable throughout much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By Nov 2021, it was trading at record levels again.
This price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?
How do I buy cryptocurrency?
While some cryptocurrencies, including bitcoin, are available for purchase with traditional currency, others require that you pay with bitcoins or another cryptocurrency.
To buy cryptocurrencies, you’ll need a “wallet,” an online app that can hold your currency. Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as bitcoin or Ethereum and etc. Here’s more on how to invest in bitcoin.
Wazrx is one popular cryptocurrency trading exchange where you can buy and sell bitcoin and other cryptocurrencies. Also, a growing number of online brokers offer cryptocurrencies, such as CoinDcx, CoinSwitch Kuber, Bitbns, and more!
Are cryptocurrencies legal?
There’s no question that they’re legal in India, though China has recently banned their use, and ultimately whether they’re legal depends on each individual country. Also, be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.
What are the Crypto Exchanges in India?
Wazirx is an Indian subsidiary of Binance Holdings, one of the largest cryptocurrency exchanges in the world. The trading platform, which is available on Android, iOS, Web, Mac, and Windows, has over 6.5 million registered investors. In June 2021, the exchange processed crypto transactions worth $6.2 billion. The platform’s peer-to-peer (P2P) system is one of the most fascinating features available on exchanges.
CoinDCX is one of the most popular crypto trading platforms in India. The Mumbai-based startup has more than 4 million inventors registered on its platform which was launched way back in 2018. Investors can trade in more than 200 cryptocurrencies on CoinDCX, which only charges a nominal trading fee. Most importantly, the platform offers free deposits and withdrawals to its clients. You may remember CoinSwitch Kuber from their marketing blitz during the Indian Premier League (IPL). The exchange, which was launched in 2017, lets investors trade with as little as Rs 100.
- CoinSwitch Kuber
CoinSwitch Kuber allows investors to trade in over 100 cryptocurrencies. It claims to have more than 3 million investors. Starting in 2013, way before the crypto-mania gripped the world, Unocin is one of the oldest crypto trading platforms in India. The platform currently has over 1.5 million registered investors. Investors can buy or sell cryptocurrencies with INR. Investors can also recharge their mobiles and pay for their DTH bills using Bitcoin on the Unocoin platform.
Bitbns is a lesser-known crypto platform in India. However, the exchange is said to be one of the best for investors starting their crypto investment journey. Bitbns exchange offers grade-A security to its investors and accepts payment modes such as UPI and net banking.