Cryptocurrency is all the rage among people these days, especially the younger demographic. Everyone wants a piece of it, or at least dabble in the space to spur their curiosity. But, what is cryptocurrency? How does it work and how do you get to own it? These are some of the basics questions that we try to answer over here so that more people know more about it, and make a sound decision based on facts rather than any marketing gimmick. Here is everything from A to Z you need to know about cryptocurrency.
What is cryptocurrency?
Cryptocurrency is a form of virtual currency that operates in a decentralised ecosystem — this means it is not part of any country’s legalised set-up and that no government has control over cryptocurrencies as these are issued by private companies. Being a virtual currency, crypto can be sent or received from any part of the world as geography is no longer a limitation for money to move across borders.
Currently, there is a wide range of crypto available in the market in which a person can invest. The most popular ones are Bitcoin, Ethereum, Dogecoin, Litecoin Ripple, and NEO, among others. You can transfer cryptos between two accounts without needing a bank’s authorisation. This model has become appealing to many people these days, who are willing to give cryptos a shot, no matter what the results are.
How cryptocurrency works
As we mentioned, cryptocurrency operates in a decentralised system, which is called a blockchain. Basically, this technology runs through multiple computers that take care of the entire transaction in a ledger format. It is impossible to alter or delete these transactions, which makes it appealing for its secured nature. It also works through two-factor authentication, which is always the preferred choice of transacting virtually, no matter what system you are using.
So, let’s say you want to invest in Bitcoin or Ripple, you need to follow the basics of any financial transaction.
- The person must open a crypto trading account
- For that, all you have to do is apply for an account, submit Know Your Customer (KYC) documents that verify your identity and credentials
- Once your application is approved, you can start trading in all kinds of cryptocurrencies
There are various crypto exchanges platforms like Coinbase, Binance, WazirX, Zebpay, and CoinDCX, among others that you have in India. Like the stock market, cryptos rely on market speculation, rumours, or a piece of booming news to push up the value of certain crypto, or bring it down. Most financial experts talk about its volatile nature, especially because of its infant stature in the ecosystem. So people are warned about its possible drawbacks before deciding to invest in Bitcoin, Ripple, or any other crypto.
Why is the crypto market down?
As we mentioned, the crypto market operates heavily on the basis of speculations. So any possible pro-crypto news can spike its value and even the slightest shadow of doubt over its performance can bring it down. Recently, crypto enthusiasts saw the dark side of investing in digital currencies. The crypto market has seen a decline due to the following reasons in the past:
- Legalisation: Every passing day, new countries are accepting cryptocurrencies like Bitcoin as a legal tender. El Salvador stole the limelight a few weeks ago, allowing people to accept Bitcoin. However, such instances can either end up jacking up the value of cryptos or bring them down. For instance, the first day of Bitcoin as a legal tender in El Salvador saw its value come down by 10 percent as it raised questions about how bitcoin will operate as a legal tender. While countries like China are also taking strict action against cryptocurrency exchanges, trying to discourage people from investing in cryptos. Events like these can have a ripple effect on the value of cryptocurrency.
- Theft: It’s another factor that has affected the crypto market value recently. Although crypto is touted to have a secured network, a vulnerability in blockchain website Poly Network allowed hackers to steal $600 million in cryptocurrency last month. About $267m of Ether currency has been taken, $252m of Binance coins and roughly $85 million in USDC tokens. This resulted in Bitcoin value dropping by 2 percent. “The amount of money you hacked is the biggest one in the defi history,” Poly Network said in a tweeted message to the thieves.
- Investigation: Technically, cryptocurrencies are not governed by any entity, and that’s what makes them so appealing to investors. However, nowadays we have come across stories about various countries trying to put a tight leash over crypto exchanges. Recently, the market might get spooked after the news about Binance being banned in the UK. Nothing concrete has come out of the investigation. But putting these exchanges under the radar of law enforcement is a red flag worthy enough to bring down the value of cryptos.
- Outside influence: Last but not least. The crypto market value also depends on outside influence. This has been both good and bad for the crypto market. Take the Elon Musk case for example. Every time he tweets about cryptocurrencies, the market seems to react to them. Earlier this year, Elon tweeted that Tesla will be accepting payments for their cars in Bitcoin too. This resulted in Bitcoin value reaching its then all-time high of $58,000. However, it soon fell to nearly $30,000, sending the crypto market into a downward spiral, when he tweeted Tesla would no longer be accepting payments in Bitcoin owing to the high energy consumption of Bitcoin in the mining process. Musk has also been responsible for the rise of Dogecoin.