Cryptocurrency: Definition, Advantages, Basic Examples, and Tips – A Complete Overview

Cryptocurrency is one of the hottest topics among young investors nowadays. If you are a crypto enthusiast, you can see crypto coins and blockchains making headlines every day.
Crypto investments have become quite prevalent in the last few years worldwide. Let’s understand the basics of crypto before you dive into crypto trading.

Cryptocurrency – Meaning & definition

Cryptocurrency is a digital currency. It doesn’t depend on the central banking system or any third party to verify the transactions. Alternatively, it uses a decentralised platform to validate transactions on a publicly distributed ledger called ‘blockchain‘.
This blockchain helps in limiting the duplicity of currency. You can buy crypto coins and trade them on various crypto exchange platforms. However, these coins and the exchanges are free from the supervision or monitoring of any centralised authority.

How does cryptocurrency work?

To start trading in the crypto market, you need a crypto wallet. It might sound like a paper currency wallet, but unlike those, it doesn’t hold any currency. It only holds the address for your funds on the blockchain.
Each time you buy a cryptocurrency, you initiate and authorise a movement of the specified amount from your wallet address to the seller’s wallet address.
You can buy and sell cryptocurrency using a crypto exchange. In these exchanges, you can buy and sell fiat and cryptocurrencies. You can also use cryptocurrency to purchase a product or service. This entire process of transaction takes place via the blockchain.

Examples of crypto

Currently, thousands of cryptocurrencies are in the market, with one or many being launched each month. But these are some of the frontrunners in this industry with huge market capitalisation:

Bitcoin

Bitcoin is the Alpha of cryptocurrencies. It was the first cryptocurrency launched in 2009, as open-source software. The whitepaper author who introduced this currency was under the pseudonym of Satoshi Nakamoto.
Bitcoin enables its users to make transparent peer-to-peer transactions using a safe algorithm through its blockchain technology. Every user can see the transactions, but only the owner can decrypt them with a ‘private key’.

Ethereum

Ethereum was launched in 2015 and is an open-source platform based on blockchain technology. ETH blockchain, along with tracking ownership of its transactions, focuses on running the programming code of any decentralised application. Ether is the token of this blockchain. Ethereum has been working on various upgrades to further streamline its operations.

Lite Coin

Lite Coin was launched as an alternative to Bitcoin. Like other coins, it is also an open-source, decentralised network where digital currency transactions occur.
So how is LTC different from BTC?
LTC is alleged to have a faster transaction feature than BTC. The coin limit for BTC is 21 million, whereas, for LTC, it is 84 million. They also function on different algorithms- LTC operates on ‘Scrypt’, whereas Bitcoin operates on ‘SHA-256’.

How to buy cryptocurrency?

You can buy cryptocurrency through a broker or crypto exchange. One such popular exchange is Coinbase. To make a purchase, you have to open an account, deposit funds and place a trade order.
If you are looking for further exposure to cryptocurrency, you can invest in an ETF, a crypto-based mutual fund, or buy a share of a company that deals in crypto, such as Square.

How do you access your crypto assets?

The only way to access your crypto assets is to have your private key and use an interface which accesses a blockchain. You can safely store these keys within a crypto wallet. These wallets come in many forms and types, such as hot wallets and cold wallets.
Further, you can also store this key in hardware wallets. Hardware wallets are thumb drive devices where you can store the keys. You can only connect it to the computer when accessing your wallet. These two are cold wallets.
Lastly, there is an online or software wallet, which is a hot wallet. These are apps or software where you store keys and can conveniently use them to send, receive and use your cryptos.

What are the 10 most popular cryptocurrencies right now?

While Bitcoin (BTC) is the most popular and prominent of all the cryptocurrencies, there are now thousands circulating in the market. Among these all, there are some coins which have been a tough competitor to BTC.
Here are the ten most popular cryptocurrencies right now:

• Ethereum (ETH)
• Tether (USDT)
• Dogecoin (DOGE)
• Cardano (ADA)
• Binance Coin (BNB)
• USD Coin (USDC)
• Polygon (MATIC)
• Binance USD (BUSD)
• XRP (XRP)
• Polkadot (DOT)

Advantages and disadvantages of cryptocurrency

Cryptocurrencies have gathered both support and controversy since it was launched. Being a totally new concept, some find it intriguing, and some find it confusing.
Here are the advantages and disadvantages of cryptocurrency:

Advantages

• Cryptocurrency transactions are private and secure despite being validated on a publicly distributed blockchain.
• The crypto coins have low transactional costs and additional fees you might pay at banks and gateways.
• Crypto market has high volatility, which makes it susceptible to higher returns.
• Crypto is decentralised, which eliminates the need for an intermediary.
• Anyone can mine crypto with proper resources and knowledge, which are easily available.

Disadvantages

• Security and anonymity make it easier for people to use them for illegal purposes.
• All sellers and traders do not accept cryptocurrency.
• High volatility scares off a lot of investors as it can dim the value of their assets over time.
• Blockchain platforms are prone to cyber-attacks. Also, there is no way to recover lost coins.
• Crypto mining consumes a lot of energy and resources.

Why to invest in crypto?

Cryptocurrencies have become a hot topic in the last few years. But why should you invest in this speculative asset? What it has to offer?
Have a look at these five reasons why you might consider this alternate investment vehicle:

• One primary advantage is that crypto transactions are lightning-fast and take minutes to complete.
• The transaction fees are relatively lower.
• Anyone can use crypto with an internet connection and computer. Opening an account is also faster and more convenient as there is no requirement of ID or credit history check.
• Crypto transactions are extremely secure, and no one has access to your funds without the private key.

Importance of cryptocurrency

As crypto is decentralised, you can invest in crypto without the fear of confiscation or interference from a third party. Central banks and governments do not get involved with your assets. This decentralised mechanism makes crypto one of the most sought-after investments.

Future of crypto in the Indian market

Cryptocurrency has gained much popularity in the Indian market, particularly after the pandemic. As per the report by the United Nations Conference on Trade and Development Report 2021, 7.3% of Indians traded cryptocurrency in 2021.
As India is rapidly moving towards digitisation in almost every aspect, it is essential to consider that India doesn’t have the regulatory framework to govern the crypto assets market. However, considering the number of enthusiasts and potential investors, India has a great prospect for crypto market.

Conclusion

Even if trading and investing in crypto is easy, handling it can pose challenges. Hence, before you start investing, consider learning the basics of cryptocurrency.

Frequently Asked Questions

1. What is cryptocurrency?

Cryptocurrency is a digital, decentralised currency which operates on a publicly distributed ledger mechanism called a blockchain.

2. Is cryptocurrency legal in India?

Cryptocurrency is unregulated in India. However, in the Union Budget 2022, the Indian Government has announced a flat 30% tax on gains from cryptocurrency transactions and a TDS of 1%.

3. How to mine cryptocurrency?

The first step of mining cryptocurrency is to choose your cryptocurrency. Then you have to look for particular equipment that you need to use to mine. Set up a crypto wallet and download the software for the chosen crypto. Join a pool and start mining!

4. Is crypto real money?

Crypto is a digital asset. Unlike traditional currency, which you can carry around and exchange in the real world, crypto entirely functions on the digital platform. It is real currency but an intangible one.

5. How to invest in cryptocurrency in India?

You can start investing in cryptocurrency in India in a few easy steps. First, you have to choose your currency and a crypto exchange and open an account. Add money to your account by UPI, bank transfer or net banking. Buy your preferred crypto and store them securely in a crypto wallet for future trading.