Let’s understand Cryptocurrency !
Evolution of cryptocurrency
Stage 1 – Barter System where people interchange /exchange their goods and services in respect of other goods and services, but it does not last for a long time because we
a. cannot measure the value of each other goods/services
b. coincidence of wants To Find a person of same good/service is also not possible
Stage 2- In 1600 -1900 paper currency was used which consisted of notes & coins and it gained popularity as it was a measure of value and widely accepted.
Stage 3- Where bank start providing different credit cards, digital wallets such as google pay , Paytm , phone pe etc where all these where control by the government and central bank but it have some drawbacks such as :-
a. Technical issue with the bank the user account got hacked by the hacker
b. Transfer limits for the amount which cannot exceeded like normal saving account per day withdrawal is 50000 not more than that
Stage 4 -Thus let to the evolution of cryptocurrency
What are the cryptocurrencies?
Crypto means secret and currency means medium of purchase of goods and services
In technical terms we can define it as a method which uses inscription and description to protect the communication when the third party is in the intent.
In association with cryptocurrency, we need to understand some basic terms such as
cryptography is a code word which will require a computer algorithm of hash function along with it a public key (which the user share) and a private key (such as a digital signature of a user)
People who are maintain the public ledger (recording the transaction between the buyer or seller regarding cryptocurrency) are called as miners and to validate this process is known as mining
Types of cryptocurrencies
Till May 2021 in total there were 5000 cryptocurrencies in existence.
But the main cryptocurrency are Bitcoin, Ether, Dogecoin, Ripple ,Litecoin & Cardano
Let’s understand the first 3 cryptocurrency
Bitcoin is the digital currency which is decentralized and it uses the blockchain method (it to create a ledger that triggers a transaction when a condition is met)for the code of security to perform the transaction in a peer to peer network on a manual basis . This currency can be used to send money to someone where it takes 10 mins to perform a transaction (a bit fast).It is used like money for real word transactions involving goods and services. There are only 21 million bitcoins available .
Ether is another digital currency that is accepted only in the Ethereum network, and that network is nothing but blockchain technology. Transactions over here are manual or automatic . To perform a transaction, it requires 20 min to perform. There are 10 crore Ether available
Dogecoin It is again a digital currency it was widely known as the first joke cryptocurrency but the are available at lowest price in respect to other digital currency it use the same blockchain technology for cryptography but they are available it unlimited of number
Lets understand how they actually works
With the example of bitcoin
Transaction details which one person sends to the other with the hashtag key for bitcoin is (SHA256 )passed through a signature algorithm with the user private key passed through a digital signed output distributing the output across the network with sender's public key verification and added to a block
Then why are the prices high of this currency because these digital currencies are limited in number and when we have a limit of anything the demand for those commodities rises and as price has a direct relation with demand so it leads to increase in price.
Disadvantages of these cryptocurrency.
1. Conflict between regulation anonymity as this currency is not in control of any government or banks is difficult as there are no set of rules and regulations that should be followed.
2. It is volatile in nature – which means that the price are not fixed they keep on fluctuation for example when Elon Musk founder of tesla tweet that they will accept bitcoin their prices start rising to 60000 $in March and when he tweet and said they will not accept the price fall down to 30000$ in May thus could also said as a musk dip
3. Unethical – as people are controlling it no interference of government so it can lead to the acts of terrorist, evasion etc .
4. Non-eco-friendly – as when thousands of computer are controlling the transaction and monitoring them it require a lot of consumption of power(electricity)which is not good in long run
Advantages of cryptocurrency
1. They are safe as it is easily verifiable and open traceable transaction the transfer of funds as bank operate independently in a decentralized way allowed new units to be added only after certain conditions are met
2. There is no limit on purchase or withdrawals 24/7 it is accessible
3. There is no cost of transaction which we see in banks when we transfer some money a particular amount has been deducted every time
4. It work in a decentralized environment -there are many copies of ledger anyone who is a part of it will have a copy of it (no one power is controlling it , it is for everyone )
Is cryptocurrency legal or not in India.
On march 2020 to invest, hold and trade in cryptocurrency is legal but it cannot be used as a medium of exchange with respect to currency that is it is not a legal tender of money
After the union budget 2022-23 RBI will launch its own cryptocurrency and they have to pay 30% of tax on that income .
Which Indian companies accept cryptocurrency
1. HighKart - it’s an e- commerce platform which sells electronic devices such as camera, computers ,mobiles and even clothes
2. Purse is also an online e-commerce platform which deals in electronic devices. They accept bitcoin and other cryptocurrency and can convert them into gift cards which we can use to have purchase through Amazon
3. Sapna is a diversified brand from books to health care products they accept unocoin .
4. TheRug Republic have already made their presence in 90 countries as a decor brand they accept 20 major cryptocurrencies including Bitcoin
Then what is the future of cryptocurrency:-
Futurists have a believe that by 2030 cryptocurrency will acquire 25% of national currencies and it will be acceptance by merchant and bankers
It's your hard earn money and just investing in it because it is gaining popularity doesn’t sound good so before investing, we need to evaluate its pros and cons and then find out the answers to the following questions
When & how much money should I invest ?
Which portfolio will be the best to invest?
How much risk potential is associated with it ?