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Cryptocurrency is digital money that exists only online. It is not like regular money, such as the rupee or dollar; you cannot touch or hold it; it exists in code on the internet. People can send, receive, or invest money without using banks or other traditional systems. The famous one is Bitcoin, and there are others.
Why cryptocurrencies were invented? Actually, it was to overcome some problems that traditional money systems have, like very long wait times for transfers or extremely high fees. They offer a faster, cheaper, and more transparent way to move money.
The Cryptocurrency was first launched in 2009 with Bitcoin, by a person or group known as Satoshi Nakamoto. This idea was quite a revolution for digital currency, without the dependency of banks and governments. Now, it makes use of Blockchain technology to record transactions safely.
Following the success of Bitcoin, many other digital currencies were developed. One of the most popular altcoins in 2015 was Ethereum, which presented smart contracts and allowed for automated agreements to be executed without any intermediaries.
Popularity in cryptocurrencies has taken time and has become well-known in the transactions and investments, and also an inflationary hedge. Despite the regulatory hurdles that were faced, its popularity fades not. Latest developments like DeFi and NFT broaden the application possibilities of the blockchain.
Cryptocurrencies operate using a specific type of technology called blockchain.
Blockchain: Consider a huge public ledger or record book distributed among all. Every time a person makes a purchase, sells, or transfers cryptocurrencies, that is entered in the book called a blockchain. It is a multi-computer verification of every transaction, so it can't be incorrect or messed with.A decentralised asset, a cryptocurrency, is quite unlike the money as governments and banks actually control the money, but do not control any of the cryptocurrencies. Its central authority would not be controlled; it's run through the people in sophisticated computer systems.
There are many types of cryptocurrencies, but people are only familiar with a few.
Bitcoin : This is the first crypto currency used as investment or paymentsEthereum: It is not a currency; it is a platform for developers to build applications, such as decentralised apps (DApps), and create smart contracts.Some other popular cryptocurrencies include:Ripple : It is mostly used to perform fast international transfers.
Dogecoin : It arrived very with low profile but it become viral through social media
Software Wallet: An app or online platform that stores your crypto (e.g.Binance, WazirX, Coinbase).Hardware Wallet: A physical device (like a USB stick) that stores your crypto offline, which makes it safer from hackers.
Public Key: This is like your bank account number. You can share it with people to receive money.
Private Key: This is like your ATM pin or password. This allows you to access your wallet and send money. Do not share this with anyone.
Mining: Mining is proving cryptocurrency transactions within the blockchain. While miners verify one transaction, they are given an award in a new cryptocurrency. That's essentially earning money for allowing the system to continue.
Exchange: An exchange works like a crypto version of a stock market. It's an avenue for trading, selling, or buying one's cryptocurrencies. Examples of some exchanges are Binance, Coinbase, and WazirX.
The value of cryptocurrencies is always in a state of flux and may change rapidly. For example:
Supply and Demand: As in the case of any other commodity, the price of cryptocurrency is determined by supply and demand. If more people want Bitcoin but not enough Bitcoin has been created, then the price increases. Conversely, if fewer numbers of people want it, then the price decreases.
News and media: Good news around a cryptocurrency, that is, such as how a major firm is accepting bitcoin as a method of payment. More and more people can now buy it thus increasing the prices. Negative news such as government regulations or security concerns see the price lower as people will sell off the crypto.
Market Sentiment: The attitude of investors has a bearing on the price. When they feel that the price is going up, they increase buying and force the price to increase. When they believe that the price will go down, they start selling, which lowers the price. It is much the same with the stock market.
In fact, the more willing companies and governments are to use or endorse crypto, the more generally the prices move upwards. But when it happens vice versa-for example, when a government bans it altogether or strictly controls the usage, then the price could significantly fall.
Whale Movements This is an investor in the world of crypto; an individual owning a huge amount of cryptocurrency. That means, wherever whales buy, sell big amounts and, therefore is very capable to move prices sharply since commanding a huge share in the marketplace.
Technological Advance: Any upgrade or any new features on the core technology of any cryptocurrency, like Ethereum, increases its price or value and can make it even more costly. If there is something wrong with the technology or is hacked, it's going to crash.
Blockchain Security: Blockchain is very secure. Once a transaction is recorded, it cannot be hacked or changed easily. It is a very safe way to record data.
Risks: But there are risks. Cryptocurrencies can be very volatile (prices go up and down in almost no time). Moreover, if you misplace your private key, the access to your crypto disappears forever. Hackers even try to steal exchanges, so one has to use only the best platforms and wallets.
Sign up: Create account using basic information like email and phone, and will complete a simple KYC procedure by displaying PAN or Aadhaar card.
Add Money: Add your daily money (INR) into the app via UPI, bank transfer, or net banking.
Buying crypto: Select the type of crypto you want to buy, Bitcoin or Ethereum, and then by it through the platform.
Keep it safe: Keep your cryptocurrencies in a secure wallet, be it an app or a special device.Watch and Sell: Observe the prices and once they rise, and you feel comfortable with the profit, sell it.
Watch and Sell : Take your time and Sell when the correct rate arrives.
Eg; You Opens an account and Buy Bitcoin for 20000 INR and you got 0.00001 BTC. And after 3 Years you sell it for 40000 INR your profit is 20000 INR. In India you have to deduct 1% at Sales time as TDS and 30% as tax if sold in 2 years and 20% tax if sold after 3 years. That means If you need to sell for atleast 30000 INR if you are selling with in 2 years to keep your investment safe.
One Bitcoin in India Cost less than 3 rupees in 2010. And today it is Morethan 89 Lakhs
Price Variations: Cryptocurrencies rate may change time to time, this making it a high-risk investment.
Risks: Even though blockchain offers security, cryptocurrencies can be hacked, and lost private keys will lead to permanent lossLimited acceptance: Many businesses and individuals do not yet accept cryptocurrencies.
Scalability: In the blockchain of cryptocurrency networks, only so many transactions could be processed in one second. As the load increase, it does become too slow, and costs increase for transaction.
Difficulty to New Users: Cryptocurrency can be a real struggle to understand what is safe, considering it as difficult for the beginning users to read.
No Consumer Protection: The services of cryptocurrency is decentralized, with little to no support or protection when using the currency fraudulently to commit crime and losing it.Association with Illegal Activities: Anonymity provided by cryptocurrencies for illegal activities attracts negative attention from regulators.
Legal and Tax Complications: Taxes on cryptocurrencies are different and often create difficulties while reporting and ensuring compliance with all legal obligations.
More companies and countries are adopting cryptocurrencies Daily. Companies accept Bitcoin as payment while countries study ways to control or even establish their own digital currency. Other than buying and selling crypto, people are also finding new uses like:
NFTs (Non-Fungible Tokens): Digital art, music, or even a tweet that can be bought and owned with cryptocurrency.DeFi (Decentralised Finance): Financial services like lending or borrowing that are not based on banks but instead rely on blockchain technology.
Cryptocurrencies present a new way of finance and technology, but they pose many challenges and limitations, such as price variations, regulatory uncertainty, security risks, etc. Therefore, these factors help in giving a good understanding of the risk associated with these products among the users and investors to use them. As the technology evolves and regulations become clearer, cryptocurrencies may become more stable and widely accepted, but it’s important to remain informed and vigilant when navigating this fast-changing landscape.
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