What is cryptocurrency? How cryptocurrency works?

Last Updated on December 6, 2021 by Admin

In this world of digitalization, Cryptocurrency emerged as digital form of currency which is held electronically in wallets. There is no physical coin or paper money involved in this. Cryptocurrency is used digitally as mode of payment for buying goods and services. Cryptocurrency can be exchanged online without using an intermediary like a bank.

Bitcoin and Ethereum are most popular cryptocurrencies, however there are different cryptocurrencies are available in the market and new currencies are being created and launched in the market.

Table of Contents

What is blockchain?

Cryptocurrencies work on the basis of blockchain technology. Blockchain is a decentralized technology spread across many computers that manages and records transactions which make these transactions highly secured in terms of record.

A blockchain is hi-tech technology to record and keep data of transaction held between buyer and seller of cryptocurrency. In simple terms, this is some sort of digital ledger or register of recorded data which is shared between all the stakeholders of particular cryptocurrency.

This is transaction history for every unit of the cryptocurrency showcasing how ownership has changed over the period of time. Blockchain works by recording transactions in ‘blocks’, with new blocks added at the front of the chain.

Ethereum blockchain, Binance blockchain, Solana blockchain are most popular blockchains. Many other blockchains are coming into the existence time to time.

What is cryptocurrency mining?

Cryptocurrency mining is very very complex process which is done with the help of thousands of computers and heavy storage servers which are used by data miners to generate the crypto coins and tokens after solving very very complex puzzles etc. by using there lots of time and efforts where recent cryptocurrency transactions are also checked and new blocks are added to the blockchain.

Whether cryptocurrencies are legal?

Cryptocurrencies are legal in the United States and most of the Americans have started investing in them to create wealth. In India also Govt. has allowed investment in them but using them as mode of payment for goods and services yet not started legally.

Govt. of India is in process to make rules and regulations for use of such crypto currencies in India. Even RBI has announced recently that they will launch their own crypto currency in India shortly.

Govt. of India, ministry of finance is under discussion of Cryptocurrency bill in winter session of parliament and once this bill get approved then Govt. of India will regulate all the Cryptocurrency exchanges and transactions according to the Cryptocurrency bill, 2021.

Many other developed countries & European countries also declared legal tender of those cryptocurrencies. Due to which market capitalization of crypto currencies is booming as people are investing their huge money in them and new blockchains are developed day by day.

Although China has banned use of crypto currencies for now. So whether they’re legal or not, it depends on each country.

Types of cryptocurrencies available in the market

In today’s time there are more than 10,000 cryptocurrencies are available in the market which are being traded publicly on different crypto exchanges. Cryptocurrencies continue to proliferate, by raising money through initial coin offerings (ICOs) same way as IPOs in stock markets.

Below are few most popular digital currencies in which people are trading and investing huge money to get multi time returns.

Most popular Cryptocurrencies with their market capitalization so far

Bitcoin more than $1 trillion

Ethereum more than $430 billion

Cardano more than $75 billion

Binance Coin more than $71 billion

Tether more than $68 billion

XRP more than $50 billion

Solana more than $49 billion

Polkadot more than $33 billion

Dogecoin more than $32 billion

Whether cryptocurrencies are good option for investment?

History of cryptocurrencies like Bitcoin, Ethereum and Binance coin shows that they made many millionaires and billionaires who had invested their money in such cryptocurrencies.

They may go up in value very quickly like 10x, 100x, 1000x or so on suddenly and also go down drastically same way that is why many investors see them as speculative items and not as investments like stocks.

Cryptocurrencies don’t generate any cash so to make you to profit, someone has to pay more for the currency than you did.

Market of cryptocurrencies are highly volatile as compared to stock markets so one should keep this in mind while putting their money into cryptocurrencies.

There is no doubt that crypto currencies with large market capital such as bitcoin, Ethereum, cardano, binance coin are the currency of the future and they will definitely provide huge profits and returns to their investors.

How to buy cryptocurrency?

To buy cryptocurrencies, there is need of a “wallet,” an online app where you can hold currency. Normally, an account is created on an exchange to do investment and trading in crypto currencies and then you can transfer real money to buy cryptocurrencies such as Bitcoin or Ethereum through such crypto exchange platforms similar to different stock exchange to buy and sell stocks etc.

Some people earn cryptocurrency through a complex process called “mining,” which requires advanced computer equipment to solve highly complicated math puzzles.

Below some popular mobile apps available in India where you can create your account to invest or trade in various cryptocurrencies:-

You can download any of the above suitable app on your mobile from google app store or iPhone app store and you can open your account/wallet by uploading your KYC documents and bank details through easy steps. Then you can start investing or trading into Crypto currencies.

Important tips for protection from fraud

Please read all the terms and conditions mentioned in the company’s prospectus/offer when you wish to buy any cryptocurrency through ICOs.
Also check who owns the company as an identifiable and well-known owner show positive sign.
You should check about other major investors who are investing. If other well-known investors are involved then it shows some sort of stability of that crypto in market.
Whether Cryptocurrency already been developed, or the company is going to raise money to develop it? This will you an idea about existence and future of currency.

It is always better to do proper market research and survey before you invest your huge money in particular crypto currency. You can take professional/expert advise before you take any trading or investment step in crypto market.

How do cryptocurrency markets work?

Cryptocurrency markets are decentralized means they are not regulated or backed by any govt. authority. In fact they are run across a network of computers and servers. They can be bought and sold through exchanges and stored in ‘wallets.

Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership, stored on a blockchain. When a user wants to send cryptocurrency units to another user, they send it to that user’s digital wallet.

The transaction isn’t considered final until it has been verified and added to the blockchain through a process called mining. This is also how new cryptocurrency tokens are usually created.

Where and how cryptocurrencies are stored?

Cryptocurrency is stored in a digital wallet, which can be online on your mobile, on your computer, or on an external hard drive. But if something unexpected happens like online exchange platform run out of business, cryptocurrency is sent to the wrong person, password of digital wallet is lost, or your digital wallet is stolen or compromised then no one can step in to help you recover your money because you typically transfer cryptocurrency directly without an intermediary like a bank, therefore no one come to support you if encounter any problem. That is why it is highly risky business.

Use of Cryptocurrency as mode of payment

As of now cryptocurrency transactions are not backed with any legal protections unlike Credit cards and debit cards have legal protections if something goes wrong.

For example, if you need to dispute a purchase, your credit card company has a process to help you get your money back. Cryptocurrencies typically do not have such type of protection.

Cryptocurrency payments are not reversible. Once the payment is done with cryptocurrency, you may only get money back if the other party sends it back to you honestly.

So it is very important before buying something with cryptocurrency, know the seller’s reputation, where the seller is located, and how to contact someone if there is a problem. Please ensure and confirm these details before doing any transaction.

How to safeguard money from Cryptocurrency Scams?

Scammers are actively exploring new ways to steal your money using cryptocurrency. If anyone says you to pay by cryptocurrency then its clear sign of scam.

Scammers always insist to pay by wire transfer, gift card, or cryptocurrency. If by chance you pay, then almost your money is gone forever.

If any company promise that you can earn lots of money in a short time and achieve financial freedom then it may be scam.

Some scammers generally list fake jobs on websites. They’ll promise you a job (without any fee), but that end up taking your money or personal information.

Some scammers may call you to pay in cryptocurrency for the right to recruit others into a program. If you do, they say, you’ll get recruitment rewards paid in cryptocurrency. The more cryptocurrency you pay, the more money they promise you’ll make. But these are all fake promises, and false guarantees.

Scammers usually guarantee that you’ll make money overnight. Even they use celebrity endorsement or testimonials.

Many scammers promise free money. They’ll promise it in cash or cryptocurrency, but free money promises are always scam.

Before you invest your money anywhere, please check complete details. Do research online about company and the cryptocurrency. Also check reviews and comments of others and read more about other common investment scams going on in the money market.

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