What is Cryptocurrency? How to invest in Bitcoin and other Cryptocurrencies in India?

Bitcoin investment

Technology has given us various ways to address the problems of our lives. Now, Technology has deep rooted in our lives in such a way that everything can be done at our homes using mobile phones and gadgets. Even at this computational power, people are facing many issues in Finance sector. Many Fintech Companies are evolved to meet these problems but they couldn’t completely erase those issues. Some of the major problems in sending money from one person to other even online are Technical issue at bank, user’s account hacking, transfer limits. All these accumulate a major problem. So overcome this problem, Cryptocurrency was introduced. Some people are also calling this as Future Currency.

Introduction

So what exactly is this Cryptocurrency? Crypto means Digital. So it is a digital currency which can be used to buy goods and services as we do with our paper currency but secured by Cryptography. But it has few more features which makes a difference. Let’s dive into it now.

Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of being physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database that describe specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. You store your cryptocurrency in a digital wallet.

Cryptocurrencies are decentralized networks based on blockchain technology—a distributed/public ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central/government authority, rendering them theoretically immune to government interference or manipulation. Unlike the U.S. Dollar or the Euro or our Indian Rupee, 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.

How secure is Crypto?

When it comes to money, everyone wants security, if it is not secure then no one comes forward. Cryptocurrency got its name because it uses encryption to verify transactions. This means advanced coding is involved in storing and transmitting cryptocurrency data between wallets and to public ledgers. The aim of the encryption is to provide security and safety. Cryptocurrencies are usually built using Blockchain technology. Blockchain describes the way transactions are recorded into “blocks” and time stamped. It’s a fairly complex, technical process, but the result is a digital ledger of cryptocurrency transactions that’s hard for hackers to tamper with.

In addition, transactions require a two-factor authentication process. For instance, you might be asked to enter a username and password to start a transaction. Then, you might have to enter an authentication code that’s sent via text to your personal cell phone. With a blockchain, everyone who uses a cryptocurrency has their own copy of this book to create a unified transaction record. Software logs each new transaction as it happens, and every copy of the blockchain is updated simultaneously with the new information, keeping all records identical and accurate.

To prevent fraud, each transaction is checked using one of two main validation techniques: proof of work or proof of stake.

Proof of Stake v/s Proof of Work              

In Proof of Work, the validation of every transaction is done by solving a mathematical problem given by algorithm of Blockchain that computers race to solve and they are called “Miners”. This process is also called “Mining”. In this process, the first miner or the computer which solves the problem is awarded by an amount of crypto. But the compute power which is required to solve the problem is such high that the amount they receive may break even their efforts. According to reports, the power which was used to mine in a year was equal to the total power consumed by Singapore. All these are to just validate the transactions. Those problems are like guessing the number but a hexadecimal number with 64 digits. Your guess should be very near and if it gets tied with other miner then that’s a different scenario. It is just a guessing game.

To reduce the amount of power necessary to check transactions, some cryptocurrencies use a proof of stake verification method. With proof of stake, the number of transactions each person can verify is limited by the amount of cryptocurrency they’re willing to “stake,” or temporarily lock up in a communal safe, for the chance to participate in the process. Because proof of stake removes energy-intensive equation solving, it’s much more efficient than proof of work, allowing for faster verification/confirmation times for transactions. If a stake owner (sometimes called a validator) is chosen to validate a new group of transactions, they’ll be rewarded with cryptocurrency, potentially in the amount of aggregate transaction fees from the block of transactions. To discourage fraud, if you are chosen and verify invalid transactions, you forfeit a part of what you staked.

Types of Cryptocurrencies

I guess you have heard a lot of Cryptocurrencies by now. There are around 6700 different Cryptocurrencies in the world. The first Blockchain based Crypto was “Bitcoin” developed by “ Satoshi Nakamoto” in 2009 and there are over 18 million bitcoins in circulation and its value is near to 40,000 US dollar per coin as of May 2021.  Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as “altcoins,” include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS, Dogecoin. All of them are, or may be similar to Bitcoin working principle. The second most popular Crypto is Ethereum.

DIFFERENT TYPES OF CRYPTOCURRENCIES AND THEIR TYPES ON BUILD. source: Internet

You could think as now, why it is so popular? Why everyone is talking about it? I will explain you in simple terms. Two decades back Gold and Land were very cheap when compared to today. Why there is an increase? Because they are very few and the people who are willing to buy have became more. At first, there were few buyers and now the sources have become limited. Similarly, everyone is thinking these Cryptocurrencies as the future and want to buy them when the value is low. This has become a path for an exponential increase in the value.

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.

Are Crypto a good investment? Are they legal?

From the past few years, we can see the value of bitcoin and other crypto’s been fluctuating high and low. But I guess this cannot continue because those are also currencies and they are also not stable. Also why would one invest more than the value for a same currency. Yes, the hype is real for now but my analysis is surely this won’t be as valued as it looks. If you think, my expectations are wrong, then comment down below and let me know your thoughts. Remember, currency needs stability to sustain.

Coming to the question of legal or illegal in India, you can buy, sell, trade crypto currencies in India but it doesn’t have regulatory to look over if any major problem like scam, irregularities or such occur. So you must be careful if you are buying it.

How to buy Cryptocurrency in India?

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.

In India, there are few exchanges which are making investors process easy. They are CoinSwitch Kuber, WazirX, CoinDCX. To buy a bitcoin in them you need to follow these steps,

  • Install a famous/ reputed/ reliable Exchange such as CoinSwitch Kuber, WazirX, CoinDCX. Please make a research and do check their fees if they charge any for transaction. It is a must check checkbox if you are getting into investing.
  • Set up the account and do the KYC process. Also enable Two factor authentication for more security.
  • Add money to the exchange by using any of the payment methods.
  • Buy Crypto using your money and save them in those wallets. Also check the ledger/ transaction book always and have an eye over it as they are not regulated by any government and cannot be questioned in case of any fraud.

Conclusion

After reading this article , I am sure you certainly got to know about it completely. If you have any doubts, please comment down below and let me know your thoughts too. My suggestion regarding investing in Crypto is “Invest very small amounts and also at a reasonable price which you think is correct. Use same intelligence which you use to buy physical assets like Gold, Land and Stocks. Also that amount should not effect your status of life. Think Wisely and take market expert’s advice while investing and finally beware of Exchanges in which you are setting up the account. Also invest in famous ones like Bitcoin, Ethereum, Dogecoin.”

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