Hello Investors,
I welcome you all to another interesting article on cryptocurrencies. I'm sure many of you might have seen the bitcoin chart on how bitcoin has performed in the past few months. Just after looking at this amazing moment, there are so many people who believe that my money will be doubled.
Don't go behind this!! First learn, once you are clear with the concepts then only decide whether you're going to invest or not.
What is CryptoCurrency?
So let's understand what is the meaning of cryptocurrency in the most simplified manner. So cryptocurrency is divided into two parts one is cryptography and one is currency.
First, let's try to understand what is cryptography?
Cryptography is associated with the process of converting ordinary plain text into unintelligible text and vice versa.
Unintelligible means which can't be understood so it is the process of converting plain text into text which can't be easily understood. It is a method of storing and transmitting data in a particular form so that only those for whom it is intended can read and process it.
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Now let's understand the combined term what is cryptocurrency?
Cryptocurrency in simple words is nothing but a digital form of cash. Now let's take this example here A person A is in India and there is one more person b who is from the USA. Now if A wants to send dollars to B in the USA. Can that person directly send dollars?
NO! He or she will have to first go to a bank then the bank is a third party who is involved. who will actually convert the rupees into dollars and then verify who is the sender? Who is the receiver?
They will match certain things they will charge some money and then transfer the funds to B, so this transaction is possible only with the help of an intermediary, the bank.
Now, let's try to understand if there was something like a digital form of currency, which has no barriers. Something like that a currency it's nothing but a digital form of cash right, so what could have happened that Mr a could have directly sent funds to b without any third party and that is an example of cryptocurrency.
So what are the advantages?
- No intermediary required.
- No geographical barrier
- There is no intermediary as such charges are also very less. Who is going to charge what that we are going to cover in the subsequent part of the article but charges are going to be very less
- It's very fast. On average, of course, different cryptocurrencies will have different timings but it ranges as low as four seconds to as high for popular coins like 10 minutes these are the advantages.
What are the disadvantages?
- If a wrong transfer is made, then this person cannot ask for the money back. Why I'll tell you because let us say that the account to whom the money was to be transferred was account number six four five and by mistake, the person said six five four, now he does not know who is six five four that person. No one knows who is 654 so once money is gone it can't you get it back, if it is a wrong transfer this could have happened. If the bank was there in between because the bank knows who is 654 right that is a disadvantage number one.
- The senders and the receiver's identity is not unveiled unfortunately it is used for a lot of illegal activities through the internet, which is many times a part of the internet. This is known as the dark web but if you want to know more about this what technology is used behind all these things we are going to cover that in the next part of the article.
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Well now let's understand whether cryptocurrency is really legal or illegal?
There are two different things one cryptocurrency being legal and one cryptocurrency being allowed as a legal tender in India. Let's tackle both problems number one is it the legal answer is yes. On 6th April 2018 RBI imposed a banking ban on Indian banks to have a relationship with crypto companies but the same banking ban was lifted in 2018 by a supreme court decision and because of which the Indian banks were allowed to have business relationships and banking services with an exchange so.
What's the conclusion? trading in cryptocurrencies as of date is absolutely legal, then what is the problem is that cryptocurrency is still an illegal tender of money. Its means what, tomorrow if I want to go to a shop and buy an AC, I tell the shopkeeper okay give me this AC and I'll give you bit some XYZ amount of bitcoins in return or XYZ or some other cryptocurrency in return. Is that allowed? No, it's not legal tender. I will have to pay INR Indian rupees but then you will say but illegal.
You can compare it with something like this even if I go to the same shop I tell that okay pack that fridge for me and I say I don't have rupees right now. Do one thing I'll give you 10 Reliance Industry stocks in return. Is that allowed? No, because even stocks are not legal tender. I hope you have understood the difference between cryptocurrency being legal and cryptocurrency not being allowed as a legal tender in India.
Now let's try and understand what is a blockchain?
In simple words, blockchain is nothing but comprised of two words and one is blocked and another one is chain right now.
What's a block?
The block is nothing but a database that stores a lot of information.
What kind of information?
Now let's take the original example that a was sending some cryptocurrency to Mr B okay. Now, what that block store? The block will store information like who is the sender, who is the receiver, when was the money sent and so much more information will be stored in that block.
Now one more transaction takes place. Let's say Mr x sends another cryptocurrency to Mr y. Now again that information will be stored in this block that who sent to whom at what player whatever then M sends to N, A sends to X. Whatever so much information goes on filling in this block.
Now, this block is full another block comes in but when this block starts it will point out the last transaction actually there are concepts like hash rate or hashing we are not going to go into details of that.
Let's try and understand the essence of blockchain right so the second block will basically just point out the last transaction there that we are carrying forward. We are continuing basically from here right again this block will start filling up with a lot of information correct. Once this block is filled let's say now the third block starts but the third block will also again point out to the last transaction of the second block. Now all these blocks will be linked will be. You know tied together with the help of a chain and that is why this is called a blockchain.
Now the big question if I were to delete the data from one of the blocks is that possible? No why? Because a third block was pointing out to the end of the second block, if that second block goes away it will be clearly understood that something is missing so this cannot happen and that is why it is said that blockchain is immutable.
Now let's try and understand what is Bitcoin?
Bitcoin is nothing but a type of cryptocurrency bitcoin was founded in 2008 and was launched in 2009 by Mr satoshi Nakamoto like I am sure no one knows who Mr Satoshi Nakamoto is.
What is the advantage? I'll tell you I can just compare it something like this that we have promoters for a company similarly the promoter of this bitcoin is like Mr satoshi Nakamoto now I can imagine that if something happens to the promoter of the company then what will happen to the share prices of that company they want to go down drastically? similarly, if something happens to Mr satoshi then what but we don't know whether he's alive or not also so that danger is anyways away.
Today bitcoin is one of the most popular coins among the cryptocurrency spaces all over the world wondering how a bitcoin looks like that's how it looks. it can't be held physically in your hand why it's a digital currency well I hope you have understood what is bitcoin very nicely.
Now one or two more fun facts about bitcoin what do you think how is the supply of the Indian rupee is it limited or unlimited correct answer is it's unlimited whenever the government wants it can print more and more Indian rupees.
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What about bitcoins is the supply limited or unlimited?
The supply is limited there is exactly 21 million bitcoin all over the world okay but out of that in circulation there are 18.6 million approximately bitcoins which are in circulation right now now
let us move on with how a bitcoin transaction actually takes place.
So let us say our old example where Mr A transfers bitcoins to Mr B that's where a new transaction will be entered now what happens this transaction will have to be verified by someone like you remember the bank example if a sends money to b then there'll be a bank in between that bank will verify this transaction but in bitcoins in crypto do we have any intermediary?
No intermediaries there then who will verify this transaction, now you can imagine there are thousands of people all over the world who are there who are wanting to verify this transaction these people are called miners.
Now what happens is that whenever a person sends bitcoin to b no one will say that in plain English that will be written in some cryptic language. now you can imagine this is like some mathematical problem which someone can see something like that okay now these miners who are all over the world thousands of people who are all over the world they will try to solve this maths problem.
When this now a big question how will they solve this using pen and paper?
No using a normal laptop no all these are very like very high powered computers that they'll require supercomputers very high computing power computers will be required to actually solve these mathematical problems.
Now once they solve this problem what will happen is they will have to come to get something in return as a reward that is where we say that they are mining the bitcoin okay so in simple words someone is verifying the transaction or free of cost, okay some reward will have to be given to that person at that reward is in the nature of giving him more bitcoins but these bitcoins are mined no one will transfer bitcoin to them as such right.
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Now the big question should one invest or not wait?
First, you have to understand how volatile bitcoin has been in the past and also in the present just to give you a few stats in December 2017 it had touched the then high around 19 000 for one bitcoin then it went down and down and down entered into a bear market and it touched a low of almost 4 000 dollars per bitcoin in march 2020 and since then like stocks have rallied like anything even bitcoin rallied a long way to believe it or not roughly 42 000 per bitcoin currently as I am shooting the article the bitcoin is trading around 36 000 for one bitcoin so I hope by now you might have understood that it is a very volatile cryptocurrency.
now the big question that are you saying it properly 36 000 for one bitcoin how on earth will I be able to invest even for one bitcoin it is possible to wait for you you need not buy one bitcoin.
Can you buy it in fractions?
Yes, you buy it in infractions. For example, can you buy 0.1 shares of reliance industries? no, you can't but can you buy 0.1 bitcoin answer is yes so buying infractions is allowed.
But then the big question is that whether I should buy uh bitcoin or ethereum or any other cryptocurrency for that matter out of all this which should I choose I think that like I say in the stock market don't go for small caps go for large caps which are comparatively known which have a proven track record, similarly if I'm talking about cryptocurrencies bitcoin is a cryptocurrency which has the largest market cap and alone bitcoin has more than 65 per cent of the total market capitalization of all cryptocurrencies put together but then if you ask me my personal opinion I would want to invest a small amount of money which I always call as a party fund that will depend on everyone's risk appetite so for me it can be 5000 rupees for you it can be 10 000 for someone else it could be 500 rupees also so that depends on how much risk you are ready to take that can be a small amount with which you may start your journey in investing in cryptocurrencies.
Bitcoin Alternatives - Ethereum
Ethereum was proposed in 2013 by co-founders Vitalik Buterin, Anthony Di Iorio, Joseph Lubin, et al. as a web to the prevailing Blockchain-based Bitcoin. The software platform was launched on 30th July 2015 after a year of crowd-funding and development.
However, the reality is that Ethereum is way quite just a cryptocurrency. it's a whole artificial language and a decentralised software platform. Ethereum builds on what Bitcoin already has left for the globe and utilises Blockchain technology to its full extent.
On Ethereum, developers can program applications called ‘smart contracts. This platform’s programmability makes it extremely suitable as a whole marketplace for fiscal facilities, among other services like untraceable apps and games.
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Here’s a fun fact;
- It takes 10 minutes to mine one block of Bitcoin transactions successfully. It takes around 12 seconds to mine one block of Ether.
- Ether broadly serves two purposes within the face of economic transactions, i.e. Just like other cryptocurrencies, Ether is additionally used as a digital currency for purchase, sale, and trading between a buyer and a seller.
- Ether is additionally used inside Ethereum to run decentralised tamper-proof applications.
Ripple Cryptocurrency
Ripple envisioned the concept of the net of import back in 2012. the thought was that individuals should be able to transfer money as quickly as they move data online. What it means for normal users isn't any money conversion hassles and taxes once you want to send someone money across the planet.
This notion was Ripple Inc.’s, founding philosophy, and that they carried it out by creating a platform where transactions may be completed in a very decentralized manner and at the press of a button.
The company developed several networks like xCurrent, xRapid and xVia, which merged to make a number one network called RippleNet. in a very nutshell, Ripple could be a global payments network. you'll use the Ripple cryptocurrency XRP to transfer money on this payment network.
Ripple cryptocurrency start date was way back in 2012. Since then, Ripple Inc. also oversees the XRP ledger, which could be a Blockchain network that records every XRP transaction.
But what’s the connection between Ripple and XRP?
Litecoin Cryptocurrency: Everything That You Need To Know
Litecoin is a cryptocurrency that is the 3rd-largest by market capitalisation of currency on the market. The Litecoin Foundation manages the Litecoin project and finances its development.
Litecoin originated in 2011 post the 2008 financial crash. Charlie Lee developed it. He was an employee with Google, who later became Chief Engineer at Coinbase. His aim was to make something just like Bitcoin but “lighter”. By that, it means it takes less time to process a Litecoin transaction than a Bitcoin one.
When the worth of Bitcoin swings upwards, prices of all other alternative coins also rise. Fates of altcoins or alternate cryptocurrencies seem to be tied to the long run of Bitcoin. Since users trust the network for validation and security, any breach in one network can potentially devalue other cryptocurrency networks.
Similarly, mutual consensus builds trust within the community, and users can collectively shoot down mischievous users.
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Now the grand finale question where do you store these cryptocurrencies?
One you can store it with the exchange wherein you can also earn some interest on that possibility number two you can store them in hardware wallets, they look something like a pen drive but this is password protected. I hope you have understood and enjoyed this small session on cryptocurrencies if you have liked it don't forget to share it with your friends if you want to learn more from me do let me know in the comment section.
THANK YOU
Disclaimer: We make all articles for educational purposes. We don't give any buy/sell recommendations. Before investing in any stock do your own research and then invest in the long term.
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