Have you heard a lot about cryptocurrency and bitcoin but still not sure what it is about? Let’s give you the complete background to cryptocurrency so that you can figure out whether it’s something you would like to invest in. Let’s start with bitcoin.
What is bitcoin?
Bitcoin isn’t your regular currency with which you can buy goods by a physical transfer of money, but rather a virtual currency that runs on a system called a blockchain. Understanding bitcoin might feel like a difficult concept, but it is a straightforward phenomenon that has been used in the monetary world for many years.
Meaning:
- No central bank handles the currency, i.e., a decentralized structure.
- Audit trail with an unalterable record of all the transactions done by every single bitcoin investor and user.
- The bitcoin structure is based on anonymity, so you will never know who you are transacting with.
You might have guessed by now that cryptocurrency stands for Cryptography and Currency by now. However, many still don’t understand the concept behind it. Based on three factors; security, sensitivity, and verifiability, cryptography works as the base for the currency where it allows only appropriate people to have access to sensitive information.
But the concept of cryptography did not come into existence now, from military to financial or medical, most of the professions have used cryptography in their way, but with the modernization and inventions of a new digitally dynamic world, the concept of cryptography has evolved and now has been incorporated in the world of cryptocurrencies too.
Though the concept of digital currency may seem like a current phenomenon, but rather, it was supposed to be implemented in 1998. However, due to security concerns, it did not come into effect then. Yet, the interesting part is that they were never intended to be used the way they are used now.
From the beginning of Bitcoin in 2008 by Satoshi Nakamoto for little over a cent to make a cashless economy to its current valuation in more than millions now, the digital currency has now seen heights that were unimaginable a few years back.
How does cryptocurrency work?
Though there are more than thousands of cryptocurrencies in the market, ranging from Dogecoin to Ethereum, Stella, Ripple, etc., the first blockchain-based currency introduced in the world of cryptocurrency was Bitcoin. However, Bitcoin remains the most valuable and most popular one. Have you ever wondered what technology cryptocurrency works on?
Meet blockchain.
Blockchain is a type of database. It collects, records, validates, and verifies transactions like any other database, but what makes it different for cryptocurrency is its very existence depends on this digital encryption technology.
In technical terms, it is a systematically distributed ledger with a disparate network of computers, ensuring the safety and verifiability of the transactions in just mere seconds. Though it may sound like a difficult concept on the outer part, it is a very simple concept.
To understand it better, think of a flow chart where you are trading in cryptocurrency and have requested for a transaction broadcasted to a network consisting of other computers known as nodes which are validated using cryptic algorithms, verified.
Once your transaction is verified, it is combined with your other transactions to create a block – a BLOCK of data that is added to the existing blockchain. After all these steps get completed, your transaction is finished. Technology works wonderfully, doesn’t it? So much work but done in mere seconds.
How are cryptocurrencies priced?
From starting at $0 in 2009 to hitting the $1 mark in 2011 to now trading at a record high of $65,000, the price of the currency fluctuates like any other security exchange, and the reasons behind them are innumerable.
You see, the value of each cryptocurrency depends on the laws of demand and supply. Like the simple economics state- supply increases the value of the commodity- cryptocurrency decreases, and demand increases as the price of the commodity increases. Thankfully as the market fluctuates, the ecosystem refreshes, and balance gets restored.
However, other than being an economic or political stance that changes the value of the currency, there is an Elon Musk Factor which plays a big role in the bitcoin fluctuations. Causing an array of concerns across the minds of investors, all Elon Musk did was suggest Tesla would be retracting plans to accept Bitcoin for cars, and the price of Bitcoin dipped like crazy! This particular behavior of an individual who has so much power is CypherPunk, and one such example is Tesla’s CEO with the power to politically change the crypto market.
Now that you have learned what bitcoin is and how it works, it’s time to ask why you should invest in cryptocurrency in India rather than stock markets or mutual funds like any other ordinary investor?
The question of adding this complexity to your life was bound to arise, right? For starters, a cryptocurrency exchange in India and across the world has many benefits attached to it. From having no centralized board handling the prices to completing transactions hassle-free, there are quite a few benefits of trading in bitcoins. That’s why you can consider it as a viable source of investment. At ZebPay, we provide a one-stop shop to invest in Bitcoin and other digital currencies.
Benefits of Cryptocurrency
- User Autonomy: No governing board and controlling power over the users and investors
- No tracking: Unless you are making your transactions public, no one can trace your transactions other than you. Only you, as an investor, can be aware of how many bitcoins you have purchased.
- No taxes: As no third party can intercept these transactions, there can be no way to implement a Bitcoin taxation system. The only way it can be taxable is if the user voluntarily discloses the percentage of their bitcoin value.
- No transaction costs: If you invest in stock markets or mutual funds, you would be aware of boards charging transaction fees, whereas in sending and receiving bitcoins, the transaction costs are negligible.
Over the years, the cryptocurrency exchange in India has seen a massive expansion. However, there are quite a few hiccups in the process.
Disadvantages of cryptocurrency
- High Volatility and huge chances of losses: The price of bitcoin depends on supply and demand and shifts volatility with the market trends. For example, in December 2017, the price was $20,000 weeks later, the price fell by $13,000 to $7000. The market constantly changes, and you cannot predict the movements.
- Black market trading: No traceability might sound like a fun activity until you get duped with money. With no regulatory body managing cryptocurrency, it has become a threat. Using it to advantage, many have started trading and buying things off the black market, which has led to many countries banning the currency altogether and others putting huge fines on it.
- No regulation or rules: Again, for many investors, a decentralized market is the best place to bet, but with little to no regulations, it isn’t taxed or governed or even has a clear stance on its working procedures.
- Data loss can lead to financial loss: Untraceable, secure, favor and impenetrable, cryptocurrency is a safer place to invest in, but if you lose your data, there are no regulatory bodies to complain to. It means that if you lose the key to your wallet, there is no way to get back your money and will result in financial loss if you lose the data.
The pros and cons for an investor differ. Maybe you are a risk-taker and want to go with cryptocurrency to experience the thrill, or maybe, you are risk-averse and believe the cons are more than the pros. The list is not exhaustive, but it is crucial to know what the digital currency value is.
Expansion of Bitcoin and adaptation
As stated above, the concept of cryptocurrency in theoretical construct existed long before the digital currencies expanded and created a base for themselves. The foundations of the same are dated back to the early 1980s when an American cryptographer, David Chaum, invented an algorithm called blinding that remained central to web-based encryption but with restrictions and safety concerns, the theoretical concept never came into practical use.
However, with time, and more open-mindedness of the investors and parties, 15 years later, software engineer Wei Dai wrote a research paper on the use of digital currency and its architecture, but it never got deployed as the means of digital currency. Years later, digital and financial means arose and led to the rise of cryptocurrency. However, people still had a doubtful eye for it, and hence the investors interested in investing in the cryptocurrency were very few compared to today’s world.
In 2008 the paper published by Satoshi Nakamoto led to the rise of cryptocurrency, and a group of supporters started exchanging and mining the currency. As the entrepreneurs and tech-savvy people saw the rise in bitcoins, it led to an increase in cryptocurrency variants, and by 2010 many investors were a part of the digital currency forum.
Some of the cryptocurrency examples are Bitcoin, the world’s most widely used virtual currency, followed by Ethereum, Litecoin, Ripple, Dogecoin, Coinye, and even more. Moving along, in late 2012, WordPress became the first major company to accept payment in bitcoins which made people understand the confidence in the company, and other companies too, such as Microsoft, Tesla, came forward in accepting Bitcoin payments.
Since late 2012 and the beginning of 2013, the cryptocurrency has seen a major increase in its prices. With time, investors have become more open to the idea of digital currency
We can easily say 2013 was the year of bitcoin when one single coin value skyrocketed to $1242. Attracting a lot of attention that even influencers started trading in them and created a brand value of Bitcoin. Among those influencers, the CEO of Tesla, Elon Musk, was one of the major players.
Well, this is not just the peak. About a few days back, in 2021, Elon Musk wrote in his Twitter bio #Bitcoin, and people went crazy with the assumption of Elon Musk buying more cryptocurrency, which led to half of the investors tweeting and increasing the value of bitcoin yet again with word of mouth.
The future of cryptocurrency in India
As other countries are pretty welcoming of digital currency, India, on the other hand, is not that open to the digital market. The bitcoin has gained value and is in momentum, but in July 2021, the Reserve Bank of India issued a warning that Bitcoin usage can cause potential frauds and cybersecurity risk as it is not governed and does not have a proper institution covering its transactions; however, proper law is yet to be passed by the government of India against cryptocurrency.
The hindrances and hiccups in converting rupees to bitcoins are many in comparison to other countries. But with no central authority governing the crypto market, India is yet to form a judgment, whereas, on the other hand, China barred financial institutions and payment portals for accepting bitcoins as a form of payment.
Hence the laws against cryptocurrency depend on the country. That being said, cryptocurrency isn’t any institution or a centralized entity. That’s the beauty of bitcoin, a decentralized digital currency. However, the views on cryptocurrency vary with the user; you might love using it; you might be a layman or an investor who did not make profits from bitcoins. The value of cryptocurrency lies in the eyes of the beholder.
Key Takeaways
- Since the 1980s, cryptocurrency has been a theoretical concept and came into the limelight quite often. But, first traded in 2008 and a decade later, it is one of the biggest investment opportunities available to people across the globe.
- Some of the cryptocurrency examples are Bitcoin, the world’s most widely used virtual currency, followed by Ethereum, Litecoin, Ripple, Dogecoin, Coinye, and even more.
- Cryptocurrency is a digital currency that works like any regular currency and has its usage in different countries.
- The Indian government is not in favor of the currency and has often voiced out its concerns against it, but final judgment is still awaited from the RBI’s side.
- Bitcoin is a decentralized community, no board or financial institution is running the business, and hence, you are its sole user, buyer, and seller.
- Influencers, companies, and many other businesses accept Bitcoin as a form of payment, but many are against it, too. Moreover, higher adoption of cryptocurrency as payment options by apps like PayPal, etc.
- Publicly owned companies purchasing cryptocurrency such as Bitcoin show a high level of confidence in its appreciation and adoption. The first company to accept the bitcoin payment was WordPress, followed by Tesla, Microsoft, and other big names in the market.
