Cryptocurrency is a digital currency backed by encryption, and new coins or tokens are mined or generated through complex mathematical equations. But for investors, crypto is also an asset you can buy and sell, as its value is not static relative to fiat or traditional currency. The high volatility of the market has led to many people becoming crypto millionaires, but at the same time, some have seen their gains getting wiped out just as quickly.
If you feel a little fuzzy about what cryptocurrency is and how it operates, you are not alone. Most people are trying to figure out how safe it is to invest in these digital coins. How can you invest in cryptocurrency, and should you? Let's break it down as simply as possible.
What Is Cryptocurrency?
One way of understanding cryptocurrency is by learning what it is not. It is not “fiat” or government-issued currency, though its acceptance is increasing. Cryptocurrency is based on the idea of decentralised technology, known as the blockchain, which brings in a great amount of transparency but also anonymity through encryption. Cryptocurrency supporters say this technology aims to empower individuals to deal with each other directly, unlike traditional currency, which is managed by regulatory financial institutions.
It is a virtual medium of exchange that can be used to purchase goods and services. The crypto transactions are stored in a public ledger and secured by cryptography, instead of operating from within a centralised exchange.
How It Cryptocurrency Traded?
First, you need to know how it is created. The oldest and the most popular among many cryptocurrencies available today is Bitcoin. The process of creating Bitcoin and other cryptocurrency is called mining. Bitcoin price in India stood at Rs. 29.5 lakhs as of 3pm IST on July 30.
In this process, large, sophisticated computers are used to solve complex equations and the user earns Bitcoin as a reward for successfully doing that. It is then traded on dedicated exchanges. People can also buy cryptocurrency in a peer-to-peer exchange by investing actual money.
Who can trade?
What should people who are not computer savvy do to enter the world of cryptocurrency? Trading in cryptocurrency does not require a person to become a miner. People can start trading in these digital coins by simply making an investment and buying any of the available crypto coins like Bitcoin, Dogecoin, Ether etc. through an exchange. In India, there are several exchanges that offer this service for a nominal transaction fee or commission. But it is important to note that the trade is vulnerable to risks and the market often behaves wildly. Financial experts advise potential investors to not go all-in at once but trade keeping in mind their appetite to tolerate risks. Ethereum price in India stood at Rs. 1.7 lakhs, and Dogecoin price in India stood at Rs. 15 as of 3pm IST on July 30
It is also important to understand that a secure investment may not be a safe investment, meaning the investment is secured by the use of blockchain and other safeguards but is subject to the volatility of the crypto market. Investors should do due diligence before putting in any money.
What are the uses of cryptocurrency?
While these digital coins are a store of value, just like gold, some companies are also offering services and products in exchange for the coins.
More are planning to do that. Some countries too have talked about giving cryptocurrencies a legal backing.
Interested in cryptocurrency? We discuss all things crypto with WazirX CEO Nischal Shetty and WeekendInvesting founder Alok Jain on Orbital, the Gadgets 360 podcast. Orbital is available on Apple Podcasts, Google Podcasts, Spotify, Amazon Music and wherever you get your podcasts.