Ten Quick Facts About Cryptocurrency
“Cryptocurrency” Have you heard this word earlier? Not yet? Then better start getting some information about it because very soon most of us would be using this type of currency for many transactions. Cryptocurrency is a type of digital money or currency. This term is coined from Cryptography which is used to transform information into code which is not easily crackable that means it is encrypted. Cryptography is used basically to secure the information
Bitcoin was the first Cryptocurrency which was found in 2009 and so far more than 1000 Cryptocurrencies are available. They are derived or based on the Bitcoin.
In this, members of general public maintain the ledger from their computers keeping the safety and integrity intact of the ledgers. These members are called as miners. They get a financial incentive to maintain the security of the cryptocurrency ledger.
Here are 10 quick facts about cryptocurrency:
10. Which is the most favorite cryptocurrency?
Bitcoin and Ethereum are ruling the current cryptocurrency market. But though they are the current leaders, there are some shortcomings faced currently. The networks on which these crypto-currencies operate lack a few basic characteristics. For e.g. internally the transaction charges are high, confirmations take too long to happen and the mining operations are costlier to manage.
Things are not very rosy on the external side as well. Though these can be considered the top favorite, competition is there in the form of altcoins (these are the blend or derivatives of Bitcoins). Though these can be considered as popular, there is no mass awareness about crypto-currency and a lot of governments are totally skeptical about this method of financial transactions. Naturally, merchants are hesitant to put up signs depicting “Bitcoins accepted here” and it will take a while to get these popularly accepted.
9. How the transaction takes place with cryptocurrency?
Transactions with cryptocurrency actually have similarities with a normal financial transaction. If you do something for a service or sell a product, you will get some money in return for the service or for the product sold. Similarly, in the case of dealing with cryptocurrency, a service or product is offered and Bitcoin or some other currency is accepted in return instead of an INR or a USD. There are however special exchanges or websites to do this deal.
8. What is the exchange of cryptocurrency?
Just like there is an exchange of normal currency, where we pay local currency and get internationally accepted currency (USD), cryptocurrency also has a similar exchange or exchanges where you can buy various other cryptocurrency or exchange it with regular currency. We can buy Bitcoins by giving USD and vice versa. The exchange then keeps back a nominal fee for helping do this transaction. The fees are definitely less than the normal currency exchange rate.
7. Is it safe to invest in cryptocurrency?
As with any future investment, there are risks associated with investments in cryptocurrency. The fact that many governments and banking entities see cryptocurrency as a threat makes the investment in them even riskier. The recent news about US SEC(Securities and Exchange Commission) not giving cryptocurrency the required acceptance has made the value of Bitcoin very volatile. Other coins keep coming very frequently and promise a lot of features and returns and the company just raises funds through and ICO (Initial Coin Offering) and just vanishes into thin air.
6. What is blockchain?
Any article or discussion about cryptocurrency cannot be complete without the mention of the blockchain. Blockchain technology was the fundamental idea behind the invention of cryptocurrency. Or you can say both of them were conceptualized and invented simultaneously. In very simple words, blockchain technology or blockchain is the method by which a record of the transaction in cryptocurrency is kept in public ledgers – which is accessible by everyone and can be verified by anyone who is interested. The blockchain also has a digital encryption key that allows the ledger to be modified and only the authorized key can make any change to the ledger. The change also gets reflected in a number of other copies of the ledger as well. This is the decentralized concept of blockchain which is expected to bring about a revolutionary change in the way we execute business and financial transactions.
5. Which is the best cryptocurrency used so far?
Bitcoin and Ethereum are by far the most famous ones and many other currencies have been based on them and their decentralized algorithm. Other coins are following their lines and many other upcoming coins like Litecoin, qoinpro etc. that are becoming popular.
4. How does one raise funding?
For a new cryptocurrency venture, funding is raised by ICO (initial coin offering). The company presents its business case, roadmap and white papers to potential investors in the cryptocurrency community. Anyone who is interested in investing can do so through the ICO and can expect a good return on their investment in due course of time.
3. What is in store for the future?
The cryptocurrency market and its future are currently unpredictable. While a large number of people are very bullish about it, a few defaulters who take public money and then scoot away are bringing the confidence in these newer currencies down. There are also some genuine issues that are related to security that need to be addressed ASAP so that the general public will start becoming more confident about the cryptocurrencies.
2. What is this decentralized approach or concept?
Being decentralized means there is no single place where the records or transaction data is stored. This ensures that the data is safe from misuse and hacking. However, the cryptocurrency and transactions that happen through them do not have any central governance like an SEC or a SEBI or some governing body that ensures that transactions happen properly. So there is always a risk associated with this kind of transactions in case there is a dispute or if some transactions fail, the party involved has to seek clarifications and remedy with the technical teams that are responsible for that particular currency. Many times, they are not in a position to resolve the dispute and the transaction ends up in a loss.
1. So what is the ideal amount to be invested in these cryptocurrencies?
It really depends on the individual risk appetite. But as a word of caution, experts say that one should only invest that much amount as one is ready to forego completely in case anything goes wrong or the plan backfires. In short, only gamble with the amount you are ready to lose.
Overall, the industry is expecting a major rehaul of the cryptocurrencies in its upcoming releases and it is a wait and watch strategy to see how this interesting financial technology innovation takes us.