Beginners guide to cryptocurrency | Digital cash (2022)

Beginners guide to cryptocurrency

The world is going ga-ga over cryptocurrency or digital currency. The interest levels are high and piqued, but there’s a mixed reaction for the so-called money of the future. On one side are optimism and excitement; on the other, pessimism about the risky nature of this asset. There’s FOMO ( fear of missing out) on the one hand, and on the reverse side, the easy and unique technology that can be easily understood and accessed by anyone and everyone. But one thing is for sure - the word about cryptocurrency is spreading like wildfire. This blog will help you understand the fundamentals of cryptocurrency, blockchain technology, mining, using a crypto wallet, and what investors can buy with cryptocurrency.

What is Cryptocurrency?

Cryptocurrency is digital money, meaning, that this currency exists only in the virtual world - it does not have any physical form, unlike fiat currency. Cryptocurrencies are not linked with any valuable asset in the physical world. It is one of the primary reasons why there are erratic fluctuations in the value of cryptocurrency.

A common example of cryptocurrency fluctuation was the fall in Bitcoin prices by about 5% in a span of forty minutes in July 2019. There has been no valid explanation about the fall, which was widely attributed to speculation. Similarly, in February 2021, the price of Bitcoin, the world’s first cryptocurrency, rose to reach a never-before-mark of $65,000 before it fell down. The price increase resulted from speculations without any valid reason behind the increase.

Hence, it can be said that the value of cryptocurrency can increase or decrease dramatically without any valid reason. It is completely different from how the value of other assets changes, viz. Stocks, gold, real estate, bonds, etc.

One usual and common question that comes to mind is why cryptocurrency costs money if it is not tied to any valuable asset in the real world. Ideally, it should have come at a zero value, but that is not the case. Cryptocurrency costs money because the person or the entity possessing the digital cash wants to sell it for money. That is the reason behind the volatility of cryptocurrency.

Facts to know About Cryptocurrencies

  • Any central monetary authority does not regulate cryptocurrencies. It means that neither banks nor the government have any control or hold on the crypto landscape.
  • Most people that buy or sell cryptocurrencies do so as an investment. But, digital currency can be used for buying products and services too.
  • The entire process of cryptocurrency transactions is based on digital tokens, which is the base of the blockchain system. Accompanied by a high level of encryption, the entire process is safe and minimally risky.

But, What is Blockchain?

In simple or layman terms, blockchain is a chain of multiple digital data blocks that are ever-growing. The blocks are chronologically organized and are linked using cryptographic proofs. This is what makes these data blocks secure. Blockchain technology was used in Bitcoin mining and has become the underlying component of all cryptocurrency networks ever since. Due to this technology, a public digital ledger is decentralized and distributed. The ledger maintains a permanent record of all transactions. Each block has a unique, irreplaceable code called a hash. The hash distinguishes each block from the other.

These transactions connect through a globally distributed peer-to-peer network of computers, more commonly called nodes. It helps maintain a censorship-resistant network without the need for intermediation from any regulatory body. The distributed ledger technology or DLT makes cryptocurrencies less sensitive to modifications and frauds.

A fact about Cryptocurrency post Budget announcement 2022 (India)

Budget 2022 brings cryptocurrencies under the tax gamut. Even though India’s Cryptocurrency Bill is still to get a formal nod from the Parliament, the Union Finance Minister announced a 30% tax on the transfer of all virtual digital assets during her Budget Speech. The news is being hailed by investors and the crypto industry as a whole in India, even though the Finance Minister mentioned virtual digital assets and not ‘cryptocurrency’ directly. The euphoric spirit is because it indicates that cryptocurrencies will, after all, not get banned by the Indian government anymore.

How many cryptocurrencies are in the world and What is a cryptocurrency used for?

There is no exact figure about cryptocurrencies, but experts say that 8,000+ cryptocurrencies exist in the world today. Bitcoin, Ethereum, Litecoin, Cardano, and Polkadot are some of the most popular ones. The leading reason behind the introduction and use of cryptocurrency was to circumvent the issues associated with traditional currencies. Unlike being centrally regulated, cryptocurrencies put the entire control, responsibility, and power in the hands of the currency holder. Points to note:

  • Like national currency, cryptocurrency is owned by everyone.
  • Cryptocurrency is not representative of debt. The value is determined solely by the person who owns it and is ready to trade with it.
  • The value of the currency is not subject to the political situation in the country or the financial policy of the central bank.
  • Transactions involving cryptocurrency are mostly confidential and anonymous.
  • It is usually difficult to hack the networks of the bigger cryptocurrencies.

What is a crypto wallet And What Can You Buy With Cryptocurrency?

Investors or buyers can either pay with fiat currency, Bitcoins, or cryptocurrencies to buy most cryptocurrencies. The general process requires the need for a digital wallet, also known as the crypt wallet. The wallet is an app that has been created and developed to hold currency. Once you have a wallet, you need to exchange and create an account. Real money is transferred to the Exchange, which can be used for buying cryptocurrencies.

Not many retailers and payment processors would accept cryptocurrency payments when cryptocurrencies were introduced. However, the acceptance has increased over the years, and today, many companies, sellers, retailers, top brands, etc., are happy to take cryptocurrency payments from buyers. You can choose to invest in cryptocurrency or use it to buy luxury and daily-use products.

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