What Is Cryptocurrency? Here’s What You Should Know

Cryptocurrencies let you buy goods and services online, or trade them for profit.
Here’s more about what cryptocurrency , how to buy it and how to protect yourself

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A cryptocurrency or commonly known as “crypto” in today’s trend is a type of digital currency that can be used to buy goods and services, but uses an online ledger with cryptography to secure the online transactions.

Most of these transactions and trade in these currencies are done with the aim to earn more profits, by the traders trading in these currencies with the market moving in the upper circuit or during the high tide of the crypto prices.

Here are few things to ask about cryptocurrency, and what to watch out for before diving into the cryto market.

 

  1. What is Cryptocurrency?

Cryptocurrency is a form of digital currency that can be exchanged online for goods and services. Many companies now a days have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company offers or can be traded using the crypto wallets in the crypto markets. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service or trade them with others.

A cryptocurrency is a digital or virtual currency is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.

 

  1. How many cryptocurrencies are there? What are they worth?

 As of June 2021, more than 10,000 different cryptocurrencies are traded publicly. And cryptocurrencies continue to proliferate, raising money through initial coin offerings, or ICOs. The total value of all cryptocurrencies on June, 2021, was more than $1.6 trillion — down from April high of $2.4 trillion, according to TradingView. The total value of all bitcoins, the most popular digital currency, was pegged at about $735 billion — down from April high of $1.2 trillion.

 

 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

Market Capitalization

Bitcoin

$677.7 billion

Ethereum

$316.3 billion

Tether

$62.27 billion

Binance Coin

$60.35 billion

Cardano

$53.77billion

Dogecoin

$48.22 billion

XPR

$43.43 billion

Polkadot

$22.97 billion

USD Coin

$22.97 billion

UniSwap

$14.76 billion

Data current as of June 06, 2021.The data changes with time and market trend. 

 

  1. Why are cryptocurrencies so popular?

Cryptocurrencies attracts to their supporters for a variety of reasons. Here are some of the most popular:

  • People see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable.

Bitcoin was launched in 2015 with the starting value of $327 as of Nov 2015, the same Bitcoin is now valued at $36200 as of June 2021.

  • Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time banks tend to reduce the value of money via inflation. This decentralized structure allows them to exist outside the control of governments and central authorities.
  • Some supporters like the technological aspect behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems. Blockchain which are organizational methods for ensuring the integrity of transactional data, are an essential component of many cryptocurrencies.
  • Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money.
  • Some speculators like cryptocurrencies because it’s the latest trend of investment and is a good method of earning some returns over the investment over a short/long period of time. Some of the cryptocurrency investors have earned more than 300% returns on their investments in some of the currencies over a short period of time.

 

  1. Are cryptocurrencies a good investment? 

Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments.

 The reason?

Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.

That’s what’s called “the greater fool” theory of investment. Contrast that to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation.

“For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability which seems to be missing from a last few months.”

For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again.

The price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?

 

  1. How do I buy cryptocurrency?

While some cryptocurrencies, including Bitcoin, Dogecoin, Polkadot, Matic etc  are available for purchase using the various apps/Wallets available in the market/Playstore, others require that you pay with bitcoins or another cryptocurrency.

To buy cryptocurrencies, you’ll need a “wallet,” an online app that can hold your currency. Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as Bitcoin or Ethereum.

WazirX is one of the popular Wallets available where you can create both a wallet and buy and sell Bitcoin and other cryptocurrencies using your bank accounts. Also, a growing number of online brokers offer cryptocurrencies, such as CoinSwitch, CoinDCX Go.

 

  1. Are cryptocurrencies legal?

There’s no question that they’re legal in the United States, though China has essentially banned their use, and ultimately whether they’re legal depends on each individual country In India the mixed reaction is seen in the finance sector by the government and a positive response is expected by the government. Also be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors.

As always, buyer beware.

 

  1. How do I protect myself in Cryptomarket?

If you’re looking to buy a cryptocurrency in an ICO, read the fine print in the company’s prospectus for this information:

  • Who owns the company? An identifiable and well-known owner is a positive sign.
  • Are there other major investors who are investing in it? It’s a good sign if other well-known investors want a piece of the currency.
  • Will you own a stake in the company or just currency or tokens? This distinction is important. Owning a stake means you get to participate in its earnings (you’re an owner), while buying tokens simply means you’re entitled to use them, like chips in a casino.
  • Is the currency already developed, or is the company looking to raise money to develop it? The further along the product, the less risky it is.

It can take a lot of work to comb through a prospectus; the more detail it has, the better your chances it’s legitimate. But even legitimacy doesn’t mean the currency will succeed. That’s an entirely separate question, and that requires a lot of market savvy.

But beyond those concerns, just having cryptocurrency exposes you to the risk of theft, as hackers try to penetrate the computer networks that maintain your assets. One high-profile exchange declared bankruptcy in 2014 after hackers stole hundreds of millions of dollars in bitcoins.

 

  1. Should you buy cryptocurrency?

Cryptocurrency is an incredibly speculative and volatile buy. Stock trading of established companies is generally less risky than investing in cryptocurrencies such as Bitcoin.

 

Here Are A Few Things To Keep In Mind Before Investing

Only after understanding the basics, make a decision on whether or not you want to invest

Critics have said that cryptocurrencies have no intrinsic value.

There’s no denying that many new investors are also interested in investing their money in cryptocurrency, but are a bit reluctant because of their lack of understanding. Here are a few things you have got to keep in mind while planning to invest in any cryptocurrency:

Volatility: How much risk are you willing to take? Critics for the longest time have highlighted how volatile cryptocurrencies are. It’s much more volatile than any other investment and therefore you must understand it carries more risk as well. Not to forget there’s always this risk that your country may declare cryptocurrencies illegal any moment. The recent decision by the Chinese government is just one such example. Take the risk, but be calculative and attentive to what’s happening around you. Invest only as much as you can afford to. 

Bitcoin is not the start and the end of it: Yes, it’s the most popular, the oldest and the biggest, but Bitcoin is certainly not the only cryptocurrency in the market now. Just a reminder that Bitcoin happens to be the most expensive currency as well and therefore you must look at other options such as Ethereum, Litecoin, Ripple, Dogecoin, ShibInu and many more. So, yes, look for the most affordable and the least volatile crypto while you plan to invest. It won’t be all that bad to keep an eye on people who regularly talk about digital currency and possess the ability to influence the prices. Elon Musk is one such person.

Read whitepapers: It may not be the most exciting thing to read, but any company’s whitepaper is an insight into its functioning and helps an investor understand if it’s worth investing money into. Not only will you get to know more about the coin itself but also the utility it brings to the market. A poorly written whitepaper is an indication that if a company can’t explain the utility of its coin, is it even wise to invest in it? The ones who can’t explain in all likelihood can’t protect or preserve your investment.

Time: Generally, there’s no rule on when to invest, but it’s better not to invest when something is at the peak of a bubble. It’s equally important not to invest when it is crashing. The best time, if you were looking for one, would be when the prices have stabilised for a while on the low level. Given the volatility that cryptocurrencies epitomise, time is of utmost importance when it comes to investing money into them.

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