Introduction to Cryptos
In the recent times, we all might have come across this term 'cryptocurrency', right? It is because the trend for investing in cryptos is increasing day by day. But here it is important to note that cryptos do not function in the same way as our stock markets. As a result, understanding the same gets a little difficult. Let us now discuss the same in detail -
To begin with, In today's fast-paced digital world, currency has also gone digital. Cryptocurrency is the name given to that digital currency. It's a virtual currency that first appeared in 2009 and the most well-known amongst them was bitcoin. Alternatively, you will not be able to hold this currency in your hand like money and will not be able to keep it in your pocket. However, it can be saved in our digital wallet. Cryptocurrency is not the same as a physical coin or notes. As a result, it is also referred as online money. With that, you must be aware that the rupee, euro, and dollar are all controlled by their government. Cryptocurrencies, on the other hand, are uncontrollable. This virtual currency is not under the control of any government authority, such as the central bank or any other country or agency. That is, cryptocurrency does not use traditional banking methods, instead disbursing funds from one computer wallet to another. There are over 5000 cryptocurrencies in circulation around the world. Ethereum, Ripple, Litecoin Tether, and Libra are some of the more popular cryptocurrencies apart from the one we mentioned earlier i.e., bitcoin. Also, Bitcoin is slowly getting popular in India as a means of payment (i.e., shopping, trading, food delivery & much more can be done using this) . The reason for the cryptocurrency's slow speed was that it was illegal. Because the ban was imposed by the RBI, but the Supreme Court lifted the same in March 2020.
How do cryptocurrencies work?
When we interact with each other, there are various ways to which we transact/trade , we give value in form of money. Now when we do this trade, we value our middlemen for example - if we want to take a cab we find companies like uber or olas or if you want to buy a product online we check amazon or something else. So basically, these are the companies who build this level of trust between two individuals directly transacting with each other. Why, because when two people want to communicate they need a centralized party. We can also look at banks as an example. Because the bank's debit card allows one to easily purchase whatever he or she desires. But the issue is that we don't have complete transparency into how they operate. Assume Mr. Dhruv owns an ABC Ltd bank debit card and wishes to purchase a hoodie from Zara this evening. However, the bank shuts down due to some reasons / flaws made by them, and zara refuses to accept payment from Mr. Dhruv because the bank is experiencing issues. Now here, Mr. Dhruv's money & his spending power is getting affected.
Moving on, Now imagine the world where you don't need these middlemen & two people can directly transact or exchange value with each other without trusting a centralized party because centralized party can be corrupted. So, that is when a blockchain comes into the picture. Basically, A blockchain is a technology that decentralizes., you are no longer trusting a single entity. In a decentralized system, you will have a full transparency of how they operate..i.e., the entire ledger is public and you can trust the system more.
How can one invest in Cryptocurrencies ?
While some cryptocurrencies, such as Bitcoin, can be purchased with US dollars, others require bitcoins or another cryptocurrency to be purchased. You'll need a "wallet" — an online app that can store your cryptocurrency — to buy cryptocurrencies. In general, you open an account on a cryptocurrency exchange and then use real money to purchase cryptocurrencies like Bitcoin or Ethereum.
Why are Cryptocurrencies so popular?
People invest in cryptocurrencies for a variety of reasons. Here are a few of the most well-known:
Lastly, To sum this up, it is obvious that cryptos are riskier than stock markets, but if one wants to invest in them, it is best to first learn how they work and then go for it.
- TEAM IFA