Cryptocurrency Meaning and How It Works

Introduction to Cryptocurrency: In the ever-evolving world of digital finance, cryptocurrency stands at the forefront, heralding a new era of monetary exchange. This guide delves into the intricate workings of cryptocurrency technology, a marvel that combines the robustness of blockchain with the agility of digital transactions. From understanding how cryptocurrency works to exploring the diverse types of cryptocurrencies, we unravel the complexities behind these digital assets. We’ll navigate through the layers of cryptocurrency security, essential for safeguarding your digital wealth, and discuss the nuances of cryptocurrency transactions. For those intrigued by the investment potential, we shed light on investing in cryptocurrencies, a realm that has captivated the market’s imagination.

Additionally, we’ll explore the practical aspects of managing digital assets, including cryptocurrency wallets and their role in the cryptocurrency market. As regulations begin to shape this domain, we also touch upon the emerging landscape of cryptocurrency regulations, an essential consideration for users and investors alike. Whether you’re a novice or a seasoned enthusiast, this article is your gateway to understanding the dynamic world of cryptocurrency.

What is Cryptocurrency

Cryptocurrency is an asset that spreads through multiple computers in a shared network environment. It is an immutable ledger that secures all transactions. An immutable ledger means, a blockchain has various chains of blocks where each block has a batch of transactions, which cannot be modified and tampered with easily by anyone.

Cryptocurrency sometimes called crypto-currency or crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions.

Who Invented Cryptocurrency

Cryptocurrency was invented in 2008 by Satoshi Nakamoto. Satoshi Nakamoto was the group lead of programmers who were working behind the scenes to invent the first digital currency called Cryptocurrency.

Cryptocurrency Inventor Satoshi Nakamoto Net Worth

The inventor of cryptocurrency, Satoshi Nakamoto’s net worth is approx 30 billion dollars including 1.1 million BTC. Here is the detailed breakdown of Satoshi Nakamoto net worth.

Satoshi Nakamoto Net Worth in 2023
Grayscale	643,000 BTC
Binance	498,000 BTC
Bitfinex	192,500 BTC
MicroStrategy	152,300 BTC

Cryptocurrency in India

Understanding Cryptocurrency: Cryptocurrency is called decentralized because it is not regulated by any bank or government instead Cryptocurrency uses a decentralized system to record transactions and issue new units. Let us understand in detail What is Cryptocurrency, how it works, Types of Cryptocurrency, and a beginner guide to Cryptocurrency.

It is secure as it uses public and private key pairs for decentralization which makes Cryptocurrency secure. It is used digitally or virtually and it is just a medium of exchange.

Cryptocurrency and how it works

Cryptocurrency could be used to share value to any user. When any user initiates any transaction of cryptocurrency, it verifies and validates the transaction by asking to solve math puzzles and then adds this transaction history to a block. These blocks are chained together and forms what is called as Blockchain.

It makes the transaction history more transparent, encrypted and secured. It also works as Non-fungible tokens, which are distinct digital assets that is owned by a owner in the form of art, post, etc., These Non-fungible tokens are in-tangible and are irreplaceable by any other equal valued asset. If you purchase cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party.

Types of Cryptocurrencies and Examples

There are various types of Cryptocurrency used in current times with own identity and use. Each one has its own significance and its own identity. Below are some of the popular Cryptocurrency types which is widely used as Cryptocurrency.

1. Bitcoin (BTC)

Bitcoin is the first and most famous example of cryptocurrency, created by Satoshi Nakamoto in 2009. It remains the largest and most valuable cryptocurrency by market capitalization. It is also called as “digital gold”. It is the most widely used Cryptocurrency now also. It is used to store value and also used for transaction purposes and also used for investment purposes.

• Decentralization: Bitcoin operates on a decentralized network of computers, which means it is not controlled by any central authority, government, or financial institution. Transactions are verified by a distributed network of nodes (miners) rather than a central entity.

• Blockchain Technology: Bitcoin transactions are recorded on a public ledger called the blockchain. This ledger is transparent, immutable, and secure. It ensures the integrity and transparency of all transactions.

2. Ethereum (ETH)

Ethereum is a blockchain platform that allows for the creation of smart contracts and decentralized applications (DApps). Its native cryptocurrency is called Ether. It is mainly used for executing smart contracts and transactions. Ethereum is started in use since 2015. It is a home to Non-Fungible Tokens(NFTs).

• Smart Contracts: Ethereum is widely recognized for introducing the concept of smart contracts. These self-executing contracts with predefined rules and conditions enable trustless and automated transactions, eliminating the need for intermediaries.

• Gas Fees: Ethereum uses a fee mechanism called “gas” to pay for computational work done on the network. Users pay gas fees for every transaction and smart contract execution, with the fee amount varying based on the complexity of the operation.

• EVM (Ethereum Virtual Machine): Ethereum’s unique feature is the EVM, a decentralized, Turing-complete virtual machine that executes smart contracts and transactions. Developers can write smart contracts in various programming languages, like Solidity, which are then compiled into EVM bytecode.

3. Ripple (XRP)

Ripple is both a digital payment protocol and a cryptocurrency. It is designed for fast and low-cost international money transfers. It is started in use since 2012. It is mainly used for fast and low cost cross- border transactions. It uses a consensus algorithm to do and settle transactions quickly. The native cryptocurrency of the ripple network is XRP. It can also be used for asset tokenization and smart contracts.

• Digital Currency (XRP): Ripple uses a digital asset called XRP, often referred to simply as “Ripple,” to facilitate cross-border transactions. XRP can be used as a bridge currency to enable the transfer of value between different fiat currencies.

• Speed and Cost-Effectiveness: Ripple’s system is designed to provide fast and cost-effective cross-border transactions. It aims to significantly reduce the time and costs associated with traditional international payments.

• Real-Time Settlement: Ripple’s technology allows for real-time settlement, which means that transactions can be completed in seconds, providing an advantage over traditional banking systems that may take several days.

4. Litecoin (LTC)

Litecoin is often considered the silver to Bitcoin’s gold. It offers faster transaction confirmation times and a different hashing algorithm. It was created by Charlie Lee in 2011. It uses a proof of work consensus algorithm to validate and confirm any transactions

• Security: Litecoin is considered to be a secure cryptocurrency, and its network has not experienced significant security breaches or attacks.

• Lower Transaction Fees: Due to the faster block generation times and the use of the Scrypt algorithm, Litecoin generally offers lower transaction fees compared to Bitcoin.

5. Bitcoin Cash (BCH)

Bitcoin Cash is a cryptocurrency that split from Bitcoin in 2017. It aims to increase the block size to allow for faster and cheaper transactions. It was designed to address certain limitations of Bitcoin, primarily focusing on scalability and transaction speed.

• Block Size Increase: One of the most significant differences between Bitcoin and Bitcoin Cash is the larger block size limit. Bitcoin Cash has an 8 MB block size limit (which can be adjusted with consensus), whereas Bitcoin’s block size limit is 1 MB. This increase allows for more transactions to be included in each block, resulting in faster confirmation times and lower transaction fees.

• Faster Confirmations: The larger block size and increased capacity mean that transactions on the Bitcoin Cash network are typically confirmed faster than those on the Bitcoin network. This makes BCH more suitable for everyday transactions.

6. Polkadot (DOT)

Polkadot is a multi-chain network that enables different blockchains to interoperate and share information. DOT is the native token used for governance and staking.

Polkadot’s architecture is designed for scalability by allowing new parachains to be added to the network, accommodating increasing demand without compromising performance.

These are just a few examples of the many cryptocurrencies available in the market. Each cryptocurrency may have unique features, use cases, and Cryptocurrency Technology behind it. It’s important to conduct thorough research and understand the specific characteristics of a cryptocurrency before investing or using it.

History of Cryptocurrency Exchange – Cryptocurrency Explained

The history of Cryptocurrency is not that old. Cryptocurrency word was first used in the 1980.

Attempts were made to create digital currencies like DigiCash and E-gold by David Chaum and Douglas Jackson respectively. However, the real decentralized digital currency came to use only after 2000.

Cryptocurrency was invented in 2008 by Satoshi Nakamoto. He was leading a group of programmers to invent Cryptocurrency. The first cryptocurrency launched was called as Bitcoin.

In 2008, a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was published, which talked about the decentralized digital currency payment without any involvement of any banks. The mining of the first block known as the “genesis block” made the start of Bitcoin blockchain.

Features of Cryptocurrency

There are various features of Cryptocurrency. These features made cryptocurrency different from our regular fiat currency , added more security to the money and is hence increasing the popularity of the cryptocurrency. Here are some features of cryptocurrency.

• Decentralization: Cryptocurrency is not regulated or controlled by any authorities or any bank, it shares networks and completely works based on Blockchain Technology. It is instead collectively retained control by all users. It is immutable meaning all its transactions are not reversible.

• Accountable and Transparent: Transactions done at block level are highly transparent and could be seen by everyone. It helps in preventing any frauds. Any transaction once done cannot be traced back or it is not reversible. Hence, at most care need to be taken while doing any transaction

• Digitization: Cryptocurrency exists only in digital form. No physical notes or coins exists , hence they could be easily transferred via digital platforms. It makes the user more secured as they could not be theft by anyone. The user also need not maintain physical space in order to store currency.

• Global Transactions: Cryptocurrencies can be transferred digitally to anyone and anywhere without any border restrictions. Since, it is digitized, transactions could be done at a single click at the comfort of the user. Most of the countries in the world use these cryptocurrency transactions.

• Volatile Price: Cryptocurrencies are very high price volatile within short period of time, at the same time they are considered risky. It is mostly believed that it brings high return on investment within very short period of time. Hence, many would invest in it.

• Security: Cryptocurrencies follow cryptographic algorithms, which make them more secure and makes the hackers more difficult in manipulating it . That is why many users show interest in investing in cryptocurrency.

Future of Cryptocurrency Market

The future of Cryptocurrency cannot be that easily predicted by anyone, however with proper guidance and proper knowledge , adoption of cryptocurrency could be increased to the great extent. Regulation through government or banks would make it more stable in the market and then many traders and investors may show interest in it. There might be many environmental concerns with the rapid usage of cryptocurrencies as well. There might be increased cybersecurity threats which need to be addressed with the at most care. Since, it is highly volatile, it may produce high returns but it may also sometimes lead to risky investments. In this article, we have explained in detail about begineer’s guide to Cryptocurrency and how you can invest in Cryptocurrency.

Cryptocurrency Technology: Cryptocurrency is fully secured digital currency as it uses decentrization. However, a user still need to be precautionary to avoid any scam. Cryptocurrency is still an emerging field and the blockchain technology is now getting popular with the invention of web3. It is advised that one should first learn basics of Cryptocurrency and invest to Cryptocurrency carefully.

Why invest in Cryptocurrency

There might be many reasons which make people to invest in cryptocurrency, but they also have many challenges and risks associated with them. Before investing in them , one must know the challenges and risks thrown by the cryptocurrency in advance. Some of the reasons which make people invest in it are:

• High Return Of Investment: Since cryptocurrency is highly volatile, investment in it could give high returns within short period of time. It could sometimes be risky, but investing with proper knowledge and guidance could bring better results.

• Access to cutting edge technologies: Investing in cryptocurrency would make one exposed to various emerging technologies like Blockchain etc., It enhances the technological advancements in the society .

• Diversified portfolio: Investing in cryptocurrency makes a portfolio more diversified apart from our regular stocks and investments. It makes the less risky portfolio, and it helps the user even during crisis.

• Protection against inflation: It is believed that Cryptocurrency would give us protection and make us safe , even when the regular currency loses its value. Even during inflation, when prices go high , cryptocurrency doesn’t loose its shine and could be more useful during those times.

• Financial and technological innovation: Investing in cryptocurrency would make the technological industry more innovated and may come out with further many advancements. It completely enhances the innovation in financial methods.

How to buy Cryptocurrency

You might be thinking of how to buy cryptocurrency and start investing. Here are the step wise process to start investing in Cryptocurrency.

• Educate Yourself: Before you start investing, take the time to learn about cryptocurrencies, blockchain technology, and the different coins and tokens available. Understand the fundamentals, market dynamics, and the risks associated with cryptocurrency investments.

• Set Clear Investment Goals: Determine your investment objectives. Having clear goals will help you make informed decisions.

• Choose a Secure Wallet: A cryptocurrency wallet is essential for storing your digital assets. Consider using reputable wallets like hardware wallets (e.g., Ledger Nano S, Trezor) for added security. Make sure to back up your wallet’s private keys or recovery phrases.

• Select the Right Exchanges: You’ll need to create accounts on cryptocurrency exchanges to buy and trade digital assets. Choose exchanges that are well-established, user-friendly, and have a good reputation for security. Some popular exchanges include Coinbase, Binance, Kraken, and Bitstamp.

• Complete Identity Verification: Many exchanges require users to complete a Know Your Customer (KYC) verification process to comply with regulations. Be prepared to provide identification documents and personal information.

• Diversify Your Portfolio: It’s generally a good practice to diversify your investments across multiple cryptocurrencies rather than putting all your funds into a single coin. Diversification can help spread risk.

• Use Two-Factor Authentication (2FA): Enable 2FA for your exchange accounts and wallets to add an extra layer of security.

• Start with a Small Investment: Especially if you’re new to cryptocurrency investing, consider starting with a small amount that you can afford to lose. This allows you to gain experience without exposing yourself to excessive risk.

Where to buy Cryptocurrency and Price in India

There are a lot of platforms, where one could invest in cryptocurrencies. Many existing and still emerging platforms are there. However, one must select their own choice of platform based on research and considering various factors like goal of the user , risk tolerance, etc., Let us have a look at a few of those platforms where one can invest.

• Bitstamp: It is one of the known cryptocurrency exchanges. It offers popular trading cryptocurrencies like Bitcoin, Litecoin, Ethereum and Ripple. It is known for its security and reliability. It has a user-friendly interface which suits all types of users. It is widely used in most of the countries.

• Binance: It offers cryptocurrencies like Bitcoin, Ethereum and many altcoins. They have an intuitive user- friendly interface. They have a competitive fee structure. It is widely used by many users across the globe.

• Coinbase : It is one of the best cryptocurrency exchanges for the beginners in the cryptocurrency investment. It offers cryptocurrencies like Bitcoin, Litecoin, Ethereum. It stores users data on cloud storage and it is considered one of the secure platform to trade cryptocurrency.

• Robinhood: A user- friendly platform which is free from commissions and allows trading in stocks and cryptocurrency. It offers cryptocurrencies like Dogecoin, Bitcoin, Litecoin, Ethereum, Bitcoin cash etc., It provides mobile apps for both iOS and android users.

• Bitfinex: An advanced Cryptocurrency exchange platform. Its interface is more advanced and it offers cryptocurrencies like Bitcoin, Ethereum. It is known for its high liquidity and more advanced features. It is used by many people around the world.

Cryptocurrency Law in India

In the Union Budget 2022 outcome, the Finance Minister presented a tax regime for virtual or digital assets that include cryptocurrencies.

• Cryptocurrency investors are required to report the calculated profits and losses as a part of their income.
• A 30% tax will be charged on the earnings from the transfer of digital assets that include cryptocurrencies, NFTs, etc.
• Just the cost of acquisition and no deduction will be permitted while reporting earnings from the transfer of virtual assets.
• A 1% deduction of tax deducted at source (TDS) on the buyer’s payment if it crosses the threshold limit.
• If cryptocurrency is received as a gift or transferred it is subjected to tax at the giftee’s end.
• If you face any loss from the virtual asset investment, it cannot be balanced against other income.

Cryptocurrency Market Cap

The global cryptocurrency market cap today is $1.45 Trillion, a -1.22% change in the last 24 hours.

The cryptocurrency market cap is the total market value of all cryptocurrencies combined. It is calculated by multiplying the total circulating supply of a cryptocurrency by its current market price.

The market cap is a key metric used to assess the overall size and health of the cryptocurrency market. Investors and analysts often use market cap to compare different cryptocurrencies and to gauge the relative importance of a specific cryptocurrency in the market. The formula for calculating market cap is:

Market Cap=Price × Circulating Supply

For example, if a cryptocurrency has a circulating supply of 1 million coins and a current market price of $10 per coin, its market cap would be $10 million.

It’s important to note that market cap is just one metric, and it doesn’t provide a complete picture of a cryptocurrency’s value or potential. Factors like trading volume, community support, Cryptocurrency Technology, and project fundamentals should also be considered when evaluating a cryptocurrency.

Advantages of Cryptocurrency

There are a lot of advantages on using cryptocurrency.

• Decentralization: Cryptocurrencies are typically not controlled by any single government, organization, or central authority. They operate on decentralized blockchain networks, which means they are resistant to censorship and single points of failure.

• Security: Cryptocurrencies use strong cryptographic techniques to secure transactions and control the creation of new units. This makes it difficult for unauthorized parties to alter transaction data or create counterfeit coins.

• Transparency: Blockchain technology provides a transparent and immutable ledger of all transactions. This transparency can enhance trust in the system and reduce the potential for fraud or manipulation.

• Accessibility: Cryptocurrencies can be accessed and used by anyone with an internet connection and a digital wallet. This opens up financial services to people who are unbanked or underbanked, particularly in regions with limited access to traditional banking.

• Low Transaction Costs: Cryptocurrency transactions often come with lower fees compared to traditional financial systems, especially for international and cross-border transactions. This can lead to cost savings.

• Speed: Many cryptocurrencies offer faster transaction confirmation times compared to traditional banking systems. This makes them suitable for everyday transactions and international remittances.

• Ownership and Control: Cryptocurrency holders have full control over their assets. They can send, receive, and store their funds without relying on intermediaries like banks. This reduces the risk of account freezes and other restrictions.

• 24/7 Availability: Cryptocurrency markets and transactions operate 24/7, providing flexibility for users in different time zones and those who prefer to manage their finances outside regular banking hours.

• Global Reach: Cryptocurrencies are borderless, making it easy to send and receive money internationally without the need for currency conversion or dealing with multiple intermediaries.

Disadvantages of Cryptocurrency

Even though the cryptocurrency is widely spreading its popularity, it also comes with certain disadvantage of Cryptocurrency which need to be addressed before investing in them .

• Regulatory uncertainty: It may impact the legality of cryptocurrency and its taxation in many countries. Government may impose regulations on it at any time which makes it difficult for traders to invest in it. Hence, proper rules and regulations need to be known before investing in it.

• Security: Even though it uses encryption, there is a probable threat to it, which ultimately results in increased cyberthreats in the society. Having secured data and not leaking it anywhere would likely reduce the threat effect.

• Transactions are not reversible: since it is not reversible , even a wrong type or small mistake highly effects your wealth and hence the user must carefully do any transactions or any task while dealing with cryptocurrencies. Even single mistake could result in loss of money of user.

• Less acceptance: since many people are not aware of it and even some reject it because of the threats and less knowledge about the cryptocurrency and hence its acceptance could be seen less in the society. Required knowledge need to be inculcated in the users mind, so that many would show interest in it.

• Volatile: Prices are very much volatile posing high risk in investment to the users. It is believed that they give high returns on the investment, but it also need to be believed that it causes high risk in the investment.

What is a Stablecoin

Stablecoin is also a type of cryptocurrency. It has a stable value. Unlike our Bitcoin or other cryptocurrencies which are highly price volatile, this Stablecoin always maintains a fixed value related to any asset or currency. This Stablecoin has a combined benefits of Cryptocurrency (in terms of fast and borderless transactions) and our traditional fiat currency (in terms of stability). There are various types of Stablecoins like:.

• Algorithmic Stablecoins : These uses algorithms to manage the supply and usage of Stablecoins to maintain price stability. The best example Stablecoin under this category could be given as Ampleforth (AMPL)

• Fiat collateralized Stablecoin : These are supported and backed by traditional fiat currency like US Dollar(USD). The best example could be given under this category is Tether.

• Crypto-collateralized Stablecoin : These are supported and backed by other cryptocurrencies. The best example could be given under this category is MakerDAO’s DAI

Cryptocurrency Mining – Blockchain and Cryptocurrency

The process through which new digital tokens or new digital coins are created and new transactions are verified and added to the blocks of the Blockchain is called as “Cryptocurrency Mining“.

This process is mostly done or achieved by solving complex math puzzles called as Proof of Work (PoW). It validates the data in the blocks of Blockchain by producing a cryptographic solution. The miners upon solving the complex math problems would receive rewards in the form of cryptocurrency but after a certain level, miner would get rewards through fee paid for work done. The most widely mined cryptocurrency are Bitcoin and Ethereum.

How to store cryptocurrency in India

After buying and investing in cryptocurrency, one must store it in a secured environment so that it would be safe. There are various ways to store cryptocurrency and use them whenever you required or do any transactions. Let us have a glance at a few of them on how to store cryptocurrency.

• Cryptocurrency wallets : One must have a cryptocurrency wallet to invest in it. There are mainly two types of wallets are there like Cold Wallet (The Hardware is connected to the computer and the Cryptocurrency is stored. It is also called as Hardware wallets.

• The Cryptocurrency is stored offline and is very much secured. It connects to the Internet during Transaction time.) and Hot Wallet (these store Cryptocurrencies online and these are available in the form of Mobile apps, desktop application).

• Paper Wallet : It is a physical wallet where public and private (encryption) keys are available in the form of QR codes. To do any transaction, one must scan the keys and the crypto would be received using public keys.

• Custodial Wallet : Crypto exchange stores comes into act here, this is easy for any consumer because they may have less knowledge about it, everything here would be taken care by the exchange stores.

How to learn Cryptocurrency

Learning about cryptocurrency could be achieved with proper guidance and right strategies and good resources. One must first know the Basics of Cryptocurrency like how it works, what it could be used for, how to use it etc., and then one must read various articles related to the cryptocurrency which gives good insights on it, or else one can take proper courses from reputed sites.

Join various online communities and regularly follow cryptocurrency news so that you could know the updates regarding cryptocurrency. Also know the safety measures and be cautious at every step and be ready to take risks to get high returns. Regularly update yourself and continuously acquire knowledge about the Cryptocurrency.

Is Cryptocurrency Safe

Cryptocurrencies are considered the safest since they use cryptographic algorithm. However there is also a few underlying negatives associated with it. They are considered safe, accountable, transparent, decentralized and also they possess certain threats like High price volatile, High risk of investment, may lead to certain frauds. Hence, one who wants to invest in cryptocurrency must carefully check each and every step during investment time and must understand the risks at before hand and be ready for it. Be cautious about scams and don’t share any information related to your cryptocurrency investment.

Resources To Learn Cryptocurrency

Here are various resources which will help you learn about Cryptocurrency in detail:

• What is Cryptocurrency
• Comparison of various Cryptocurrencies
• How Cryptocurreny is created
• Bitcoin vs Cryptocurrency

FAQs on Cryptocurrency

1. What is cryptocurrency?

Cryptocurrency is a type of digital or virtual currency that uses cryptography for security and operates independently of a central authority.

2. How does cryptocurrency work?

Cryptocurrencies operate on a technology called blockchain, a decentralized technology spread across many computers that manage and record transactions.

3. What are public and private keys in cryptocurrency?

Public keys are like account numbers used for receiving funds, while private keys are akin to PINs used to authorize transactions in cryptocurrency.

4. Can cryptocurrency be used for everyday purchases?

While adoption varies, some businesses accept cryptocurrencies for transactions. However, it’s more commonly used as an investment or for online transactions.

5. How safe is cryptocurrency?

Cryptocurrencies are generally secure, but they are not immune to risks like hacking. Safe practices and secure wallets are essential for protection.

6. What are the most popular cryptocurrencies?

Bitcoin, Ethereum, Ripple, and Litecoin are among the most well-known cryptocurrencies.

7. How can I buy cryptocurrency?

Cryptocurrencies can be bought on various online platforms known as cryptocurrency exchanges.

8. Is cryptocurrency considered legal money?

The legal status of cryptocurrencies varies by country. In some places, it’s legal and regulated, while in others, it’s restricted or banned.

9. What are the tax implications of cryptocurrency?

Tax regulations for cryptocurrencies vary by country. In many places, cryptocurrencies are taxed as property or investments.

10. How can I start investing in cryptocurrency?

To start investing, research to understand the market, choose a reputable cryptocurrency exchange, and start with a small investment to mitigate risk.