Cryptocurrency, or crypto, is a form of digitally or virtually existing currency that is secured by cryptography. These digital assets do not feature any regulatory body. Instead, they utilise a decentralised system to record different transactions and release new units. To understand ‘what is cryptocurrency’, you need to be well-versed in how it works and the different terms associated with this virtual asset. Go through the following sections to get a detailed insight into cryptos.
Cryptocurrency is a decentralised virtual or digital money based on blockchain technology. Cryptos are a p2p system enabling anyone to send and receive payments from anywhere. It does not merely rely on banks for the verification of transactions. To understand what is cryptocurrency in detail, you need to know three terms, specifically decentralised, blockchain and cryptography.
Blockchain, in simple terms, is a digital ledger. Its access is provided to authorised users. This particular ledger records transactions of various assets, including houses, money or even intellectual property.
The users receive the access, and all the information shared remains transparent, immutable and immediate. In this regard, immutable means that everything that the blockchain documents cannot be tampered with by anyone.
Centralised money is the regular money used by the general public, which the central bank authorises. However, when it comes to cryptocurrencies, there is no such authority responsible for the fluctuations. This is why they are referred to as decentralised digital assets.
Cryptography is a method to secure data from unauthorised usage via encryption techniques. That said, most claims that blockchain makes, such as immutability and transparency, are provided by cryptography.
Cryptocurrencies work completely outside the banking system, utilising different types of coins. Regarding this, Bitcoin is the most significant player. Before you buy cryptocurrency, you should be well-versed in how it works.
Know how cryptos are generated and transacted here:
You can generate cryptocurrencies through mining. This process is complex and requires solving mathematical puzzles to generate coins in exchange. Ideally, you can mine one Bitcoin in just 10 minutes. However, in reality, the entire process takes almost 30 days to complete.
2. Buying the coin, selling and storing it
If you are wondering how to buy cryptocurrency, know that several brokers, central exchanges or currency owners provide this provision. After buying, you can store cryptocurrencies in a digital wallet. Now, these wallets can be hot or cold. Hot refers to the wallet that has an internet connection. This facilitates easy transactions but also exposes you to fraud and online threats. On the other hand, a cold wallet is safer but makes it harder to transact.
3. Investing and transacting
You can easily transfer cryptos from one wallet to another through your mobile phone. After buying cryptocurrency online, you can either choose to buy goods and services through them, conduct trading or exchange them for cash.
As of March 2022, there are more than 18,000 cryptocurrencies globally. However, not all of them are active.
Some of the most popular cryptocurrency examples are:
You cannot grab the answer to “what is cryptocurrency” without understanding the important terms related to this digital asset. Find details about a few of them below:
Also Read: 5 Pro Personal Finance Tips For Millennials
Before you follow the steps to buy cryptocurrency, it is crucial for you to understand the pros and cons attached to this virtual asset.
Find details about its advantages and disadvantages below:
Cryptocurrency is inherently secure since the primary blockchain technology that backs cryptocurrency is safe. This safety is credited to the decentralised and public nature of the distributed ledger technology and the fact that every transaction undergoes a highly secure encryption process.
However, since cryptocurrencies are not under government supervision, they lack the standard protective measure that other currencies receive. This also makes them quite volatile.
Cryptocurrencies are created with blockchain technology, which is a fairly complex process and offers a higher grade of security. In addition, transactions pertaining to cryptos require two-factor authentication. So, this might comfort you a bit if you are wondering ‘what is cryptocurrency’ and whether it is safe or not. However, do note the crypto swings and volatility before trading through them.
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Ans: Although crypto investing is a bit risky, you can follow some safe practices to minimise the risk. Some of the tips that will help you invest in cryptocurrencies safely are:
– Research the exchanges thoroughly
– Create a diversified portfolio
– Keep track of volatility in the market
Ans: You can purchase a range of things using cryptos from e-commerce websites. Nowadays, several technology-backed e-commerce websites accept cryptos as payment. Thus, you can purchase various products, ranging from cars to luxury goods and even insurance policies.
Ans: You can buy cryptocurrency by following these steps:
Step 1: Decide the forum through which you would like to begin your purchase.
Step 2: After this, you will have to support your account for trading. Note that the accepted payment method might vary from one platform to another.
Ans: Yes, you can convert Bitcoin to cash through two avenues. Firstly, you can approach a third-party exchange broker. They will convert your Bitcoin to cash by charging a fee. Or, you can utilise a P2P transaction for selling your Bitcoin.
Ans: As per the Union Budget 2022-2023, the Finance Minister of India, Nirmala Sitharaman, announced that individuals will now have to pay a 30% tax on any income arising from digital assets, such as cryptocurrencies. This will also include a 1% TDS.
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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