Cryptocurrency, in simple words, is form of digital currency secured by cryptography. Cryptography is associated with the process of converting ordinary plain text into unintelligible text and vice-versa. It is a method of storing and transmitting data in a particular form in such a way that it can be decoded by the receiver of the message.
Cryptocurrencies are decentralized networks of a large number of mega-computers spread across the world based on blockchain technology. This statement contains two most important features of cryptocurrency i.e. decentralized network and blockchain technology. Decentralized network means there is no central authority(like SEBI, SEC) that manages these Cryptos as an instrument and maintains the value of a cryptocurrency. You can trade in Crypto through centralized exchanges like WazirX. Thus, making it free from political interference and influence.
A blockchain is a database that stores encrypted blocks of data then chains them together to form a chronological single-source-of-truth for the data. In Block chain technology, each transaction is recorded in the form of block. This block contains the transaction details like who is sending the crypto to whom, where, and how much they are sending. It is created using complex cryptography algorithms, every time a block is formed. Once a block of transactions is complete, it will be linked to a new block. Thus, forming a chain of blocks on the network, which cannot be tampered with due to heavy encryption.
Advantages of Cryptocurrency
1. Since no intermediaries – like banks are required, transactions can be fast & cost efficient. With the help of cryptocurrency, the transaction fees paid by a user is reduced to a negligible or zero amount.
2. Swift–¬ The crypto transaction can happen in as low as 4-5 seconds to a maximum of 10 minutes, depending upon the underlying technology being used by the currency.
3. Secure and private – Privacy and security have always been a major concern for cryptocurrencies. The blockchain ledger is based on different mathematical puzzles, which are hard to decode. This makes a cryptocurrency more secure than ordinary electronic transactions. Cryptocurrencies, for better security and privacy, use pseudonyms that are unconnected to any user, account or stored data that could be linked to a profile.
4. Currency exchanges can be done easily – Cryptocurrency can be bought using many currencies like the US dollar, European euro, British pound, Indian rupee or Japanese yen. With the help of different cryptocurrency wallets and exchanges, one currency can be converted into the other by trading in cryptocurrency, across different wallets, and with minimal transaction fees.
Disadvantages of cryptocurrency
1. Unnecessary lengthy record – What is the need to maintain record of an entire cycle of all transactions from inception? In ten years the cycle will be so long that instead of present 30 minutes time taken for processing a single transaction; it may take 24 hours. Amount of computer power required, and electricity consumed may make it unsustainable.
2. Data losses can cause financial losses– If any user loses the private key to their wallet, there’s no getting it back. The wallet will remain locked away along with the number of coins inside it. This will result in the financial loss of the user. This news is enough to guess how scary losing private key can be!
3. Adverse Effects of mining on the environment – Mining cryptocurrencies require a lot of computational power and electricity input, making it highly energy-intensive. The biggest culprit in this is Bitcoin. Mining Bitcoin requires advanced computers and a lot of energy. It cannot be done on ordinary computers. Major Bitcoin miners are in countries like China that use coal to produce electricity. This has increased China’s carbon footprint tremendously.
4. Irreversible transactions – If there is a dispute between concerning parties, or if someone mistakenly sends funds to a wrong wallet address, the coin cannot be retrieved by the sender. This can be used by many people to cheat others out of their money. Since there are no refunds, one can easily be created for a transaction whose product or services they never received.
Is it allowed to trade in cryptocurrency in India?
There is no law prohibiting Indians from buying/selling cryptocurrencies in India. There was a banking ban between July 2018 – March 2020 due to which cryptocurrency exchanges were not able to hold bank accounts. Through a circular in 2018, the RBI had advised all the entities regulated by it not to deal with virtual currencies or provide services for facilitating any person or entity in dealing with settling them. However, the Supreme Court set aside the RBI circular on March 4, 2020. Since then, cryptocurrency has been one of the most talked-about investment options. But there are fears that the government may legally ban the virtual currencies being traded right now. Officially, the government does not consider cryptocurrencies as legal tender.
Section 26 of the RBI Act states that, ‘every banknote shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government’. The virtual currency is not guaranteed by the Central Government, so, in order for any virtual currency to be declared legal tender, it will have to be expressly guaranteed by the Central Government. In that case, parties are legally bound to accept it as a mode of payment. So, privately issued cryptocurrencies would not be safe.
The government has cautioned people about the risks in dealing with virtual currencies stating that virtual currencies are not a valid legal tender in India and even made clear that virtual currencies do not have regulatory protection in India.
The RBI had also cautioned about the potential financial, operational, customer protection and legal risks associated with virtual currency.
What is the future of cryptocurrency in India?
In India, the regulators and governments have been skeptical about the virtual currencies and are apprehensive about the associated risks.
Since the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is already in pipeline to create a “facilitative framework” for creation of an official digital currency that will be issued by the RBI, the road ahead would be tumultuous for private cryptocurrency as the aforesaid Bill will prohibit all private cryptocurrencies in India but will allow for certain exceptions to promote the underlying technology of cryptocurrency, and its uses. However, the future is exciting for cryptocurrency in India.
Bitcoin- The most popular one
Generally, when we say cryptocurrency, people tend to associate it to Bitcoin.
It was launched in 2009 by a group or an individual with the pseudonym Satoshi Nakamoto. The supply of bitcoin is limited to 21 million. As of March 2021, there were over 18.6 million bitcoins in circulation with a total market cap of around $927 billion. It holds more than 60% of the total value of all the cryptocurrencies of the world.
You may be aware that one Bitcoin price is now a whopping 43 lacs per coin. Many potential investors assume that they cannot afford to invest in such high valued assets and tend to stay away.
What most people are unaware of is that you can purchase Bitcoins in fractions also. In India, there are crypto exchanges like CoinSwitch, Wazir X, Coin DCX Go allowing their users to buy Bitcoin with a minimum investment of just Rs. 100.
How does it work?
Apart from Bitcoins, several other cryptos in the market also have an excellent potential of earning high returns.
New bitcoins are circulated in market after mining. Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is performed using very sophisticated computers that solve extremely complex computational math problems. In order to process the bitcoin transactions securely, entities called miners compete to solve mathematically complex problems. The miner who is successful in solving the problem adds a block to Bitcoin’s blockchain and receives a reward of few bitcoins.
You need either a GPU (graphics processing unit) or an application-specific integrated circuit (ASIC) in order to set up a mining rig.
Best cryptocurrencies by market capitalization
These are the 10 largest trading cryptocurrencies by market capitalization as tracked by CoinMarketCap, a cryptocurrency data and analytics provider.
Cryptocurrency and its Market Capitalization
1.Bitcoin-$1.2 trillion
2.Ethereum -$263.4 billion
3.Binance Coin- $87 billion
4.XRP- $81.8 billion
5.Tether- $45.4 billion
6.Cardano- $44.7 billion
7.Polkadot- $39.3 billion
8.Uniswap- $18.8 billion
9.Litecoin- $18.1 billion
10.Stellar- $14.9 billion
Data current as of April 13, 2021.
Be cautious while trading in cryptocurrency in India since it is not regulated by any law. Moreover, do remember all the credentials relating to your account on exchanges to avoid any huge financial loss.
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