Cryptocurrency is the hottest investment currently available.
Take the case of 13 year Erik Fineman who borrowed $1000 from his family to invest in Cryptocurrency. In 2011, he bought Bitcoin (leading Cryptocurrency), each worth $12. In 2013, the value of Bitcoin became $1200, and by 2015, Erik became a millionaire at the age of 18.
We have heard many such stories of people making fortunes through it. Today Cryptocurrency has become a universal phenomenon.
What is Cryptocurrency?
Cryptocurrency is digital or virtual money that is secured by cryptography. “Crypto” points out numerous encryption algorithms and cryptographic techniques.
Thus, this decentralized digital cash system uses cryptographical functions to perform financial transactions. One of the most significant advantages of being a decentralized structure is that it exists outside the control of governments and central authorities.
Some of the popular cryptocurrencies include Bitcoin, Ethereum, Ripple, DigitalNote, etc.
How does Cryptocurrency work?
A cryptocurrency is a new form of monetary institution and different from one that is governed by centralized authorities. It is called ‘peer-to-peer” transaction as there is no intermediary like banks required.
Since Cryptocurrency is internet-based money, there are no physical coins or printed bills. The only payment is denominated in terms of virtual “tokens.”
Here’s an example to explain this process.
Assume A wants to buy an item valued at $50,000 from the seller B. And B accept Cryptocurrency as a form of payment.
A will look for the current exchange rate for that Cryptocurrency. Let’s say the exchange rate is $1,000 per currency. A will get B’s free currency address from B’s website, although the identity of the buyer and seller will remain anonymous.
A will command his software installed on his computer to transfer 50 currency from his wallet to B’s address. A’s cryptocurrency client (software) will electronically sign the transaction request with his private key known only to him.
A’s transaction will broadcast to the currency network. It will be verified in a few minutes by miners and will be added to the public ledger. 50 currency will now be transferred to B’s address.
What is Cryptocurrency Mining? Who are the Miners?
Cryptocurrency mining, or cryptomining, is a process in which transactions for various forms of Cryptocurrency between users are verified and added to the blockchain digital ledger.
A Ledger is a list of transactions that ever happened in the network. The entries are stored in a database that allows for fair play in the transaction process. No institution owns the cryptocurrency blockchain, meaning it’s decentralized and self-run without the interference of outside parties.
By keeping a ledger, all the transactions are made public for total visibility for everyone.
Cryptocurrency Miners are the most critical part of any cryptocurrency transaction. Miners confirm the sales and then update them to the digital public ledger. This is done to maintain the authenticity of the information.
Cryptocurrency miners use powerful computers to solve complicated cryptographic puzzles, which is necessary to verify a transaction. After finding an answer, the miner can build a block and add it to the blockchain and record it in a blockchain ledger.
The whole process is known as a “proof-of-work” system.
As payment for their services, miners are paid their fees physically by merchants or vendors of each transaction.
Cryptocurrency exchanges are online platforms where individuals can buy, sell, or exchange cryptocurrencies for other assets. It is a website for trading cryptocurrency with digital currency or traditional currency. Cryptocurrency exchanges are also known as digital currency exchange (DCE).
Some of the largest cryptocurrency exchanges include Poloniex, Kraken, GDAX, and Bitfinex, etc., which can trade more than $100 million per day.
The crypto sector in India is showing notable development. There are several cryptocurrency exchanges available for Indian users. To name a few, CoinSwitch, Binance, WazirX, Coinbase, etc.
CoinSwitch, an Indian origin cryptocurrency exchange aggregator, has launched a crypto trading platform for Indian users on June 1, 2020. The app “CoinSwitch Kuber” will trade over 100 cryptocurrencies using Indian Rupee
Types of Cryptocurrency
Bitcoin is the most popular Cryptocurrency in the world. It was the first blockchain-based Cryptocurrency. In 2009, an unknown programmer by the name Satoshi Nakamoto introduced Bitcoin. The identity of the person or his alias is still a mystery.
The birth of Cryptocurrency or peer-to-peer technology is credited to Bitcoin. The official public ledger started on January 3, 2009.
The Stock symbol (abbreviation to uniquely identify a stock traded on a stock exchange) of Bitcoin is BTC and XBT.
Bitcoin price depends on various factors. It has seen varying rates since its beginning. Mostly, the Bitcoin price has witnessed an upward trend from its initial cost in 2011 of $0.30 to its all-time high in 2017 of $19,783.06.
In 2018, the Bitcoin price considerably fell below $8000 when the news of stronger regulations from China and South Korea spread.
Ethereum is the second-largest Cryptocurrency and most valued currency after Bitcoin. A cryptocurrency researcher and programmer, Vitalik Buterin advanced Ethereum in 2013. And it finally went public on July 30, 2015.
Seeing its popularity, at one point, financial specialists forecasted that Ether’s market capitalization would exceed that of Bitcoin. However, with some technical issues in Ethereum, its value declined.
The virtual token of Ethereum blockchain is Ether. Its stock symbol is ETH.
As on October 21, 2015, Ethereum saw its all-time low price of $0.420897. Its all-time high was on January 13, 2018, of $1,432.88.
Ripple Labs Inc., a US-based technology company, released Ripple in 2012. Jed McCaleb and Chris Larsen co-found it. As of April 2020, Ripple was the third-largest Cryptocurrency in terms of market capitalization.
Previously known as OpenCoin, the stock symbol of Ripple is XRP.
Ripple’s all-time low price was $0.002802 on July 7, 2014. Its all-time high price was &3.84 on January 4, 2018.
Ripple is different from other cryptocurrencies in the way that it needs less computing power. Ripple uses utilizes a consensus ledger as its method of verification and doesn’t rely on cryptocurrency mining.
Litecoin was launched by Charlie Lee, a Google employee and former Engineering Director at Coinbase. The Litecoin network was officially released on October 13, 2011.
The most significant advantage of Litecoin over Bitcoin is its faster block generation time.
The stock symbol of Litecoin is LTC.
Litecoin witnessed its all-time low of $1.11 on January 14, 2015, and an all-time high of $375.29 on December 19, 2017.
Indian Cryptocurrency Lakshmi
Reserve Bank of India (RBI) is pondering over to launch Indian Cryptocurrency Lakshmi. It was decided three years ago. It was indicated in a speech by Late Arun Jaitley, then Finance Minister. He said that the government would adopt blockchain technology to introduce the country’s Cryptocurrency.
There are speculations on developing Indian Cryptocurrency Lakshmi.
Facebook Cryptocurrency Libra
Libra is a blockchain cryptocurrency presented by Facebook. The currency is not released yet. It is projected to launch by the end of 2020. However, the website for Libra is already present.
In 2019, Facebook formally announced Libra when it launched its subsidiary company called Calibra to handle digital currency wallet. Though, it had renamed from Calibra to Novi a few weeks ago.
Facebook has founded Libra Association to supervise Libra. Libra Association comprises of organizations from different fields such as telecommunication, technology, etc.