Do you feel like you've walked into a mystery room when you open twitter every morning?
Do Elon Musk's tweets look like an enigma to you?
Ever feel lost in the middle of conversations about Dogecoin and Bitcoin?
If you answered yes to even one of those questions, and the words “what is cryptocurrency?” have made it to your Google search box more often than you can remember, then this article is most certainly for you.
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After all, isn’t financial freedom the best gift you can give yourself? You're never too young or too old to start investing, and this article will help you do exactly that. Let's dive into the not-so-cryptic world of cryptocurrency.
- What is cryptocurrency?
- Why should you invest in cryptocurrency?
- What are the types of cryptocurrencies?
- Binance Coin
- Busting cryptocurrency myths
1. Cryptocurrency is illegal
2. Cryptocurrency doesn’t have any actual value
3. Cryptocurrency isn’t secure
What is cryptocurrency?
Unlike most currency systems, cryptocurrency isn't governed by a bank or a central body. It exists only virtually and is stored in digital wallets. What makes cryptocurrency stand out from the rest is the fact that all crypto-related transactions are stored in an encrypted format (a series of complicated mathematical codes) making it secure. In fact, that is how cryptocurrency originally got its name.
Cryptocurrency runs on blockchain technology. The meaning of blockchain is closely related to the word itself—it is a series of data blocks linked to one another like a chain. All conceding blocks in the chain contain information about the preceding block. When you successfully add blocks to the blockchain, the procedure is called blockchain mining.
Now that you're more or less familiar with the ABCs of cryptocurrency, let's move on to why you should consider it as an investment option.
Why should you invest in cryptocurrency?
You remember when your grandparents were wise enough to buy land before prices could shoot through the roof? Crypto buyers did something very similar in the early 2000s and growth experts predict a continuous spike in cryptocurrency values. Since cryptocurrency isn't regulated by banks and technically has a system of its own, its value isn't affected by inflation rates. There's a huge possibility for growth and expansion in the field, and most digital currencies are already doing substantially well. As of 2021, there were around 300 million crypto users globally and the number is likely to reach a billion, soon! (Source: Finance-Yahoo)
Yes, it does involve uncertainty but in this case it could be a good type of uncertainty. What's to say that you won’t end up winning the lottery tomorrow? There's a risk of a possible system hack when it comes to crypto, but as a long term investment option, it definitely has a high return on investment.
What are the types of cryptocurrencies?
Although there are over 20 types of cryptocurrencies, we will discuss the top 4 cryptocurrencies that have the highest value and are the most popular among investors.
Bitcoin was the first ever form of cryptocurrency. The value of Bitcoin has been on the rise since its very inception. The symbol for Bitcoin is BTC and like any other cryptocurrency, it has a decentralised system. The Bitcoin network can be accessed by absolutely anyone and is designed in a peer-to-peer network format so that all users have equal power and connect with one another easily. It is an open source of currency and easily accessible.
2. Ether (Ethereum)
Ethereum has a large user base and also uses a peer-to-peer network. Like Bitcoin, Ethereum is also powered by blockchain technology. Known commonly by the symbol ETH, it plays an important role when it comes to NFTs (Non-fungible tokens). In the simplest of words, Ethereum is technology used by developers—it is used in creating applications, building organisations and communicating without any central authority.
Put simply, Tether is for people who enjoy stability and want to minimise risk. It comes under a category of cryptocurrencies called stable coins. The prices of Tether are tied to the US Dollar and it is often also backed by collateral reserves. In traditional currency, all loans by reserve banks are usually secured by these collateral reserves. These stable coins have helped in the speculation of cryptocurrency and have made it easier to use stable coins as a medium of exchange.
4. Binance Coin
Binance has a blockchain of its own called the Binance chain. It is used for entertainment, travel and a number of online and financial services. Under the symbol BNB, the Binance Coin has received huge support from a number of partnerships with crypto platforms and Asian companies.
There continues to be a debate about whether Bitcoin is the best cryptocurrency to invest in or whether Ethereum wins that title. In the end, it all depends on how much each cryptocurrency's visions align with your own.
Now that you know about the four most important and well-known cryptocurrencies, let's bust a few myths about the topic.
Busting cryptocurrency myths
With anything new and innovative, there is also a list of myths attached. Whether it's about cryptocurrency prices or cryptocurrency lists, people love to make their own assumptions about this new age monetary platform. Let's separate what's real from what isn't.
- Cryptocurrency is illegal
Since cryptocurrency isn’t regulated by banks, it is easy for us to think of it as an illegal form of currency. It may be banned in a few countries, but for all our desi readers, blockchain technology is very much a legal option when it comes to investment. Unocoin is a legal trading portal for all Indians where customers can buy and redeem a number of vouchers using crypto coins. The Indian government hasn’t applied any restrictions on cryptocurrency trade or sale and there are no laws regarding the same either.
(*Please note that this is based on current trends, the reader must take an informed decision after doing their own research, in case of a possible change of the law in the future)
2. Cryptocurrency doesn't have any actual value
Cryptocurrency isn't affected by inflation. It isn't backed by any gold reserves either, but that doesn't take away its value. Since cryptocurrencies are capped and have a limited value based on the algorithm - scarcity drives value. This stands true mostly for Bitcoin, because of the basic economic principle of scarcity. The value may fluctuate, but is very real.
3. Cryptocurrency isn't secure
The term cryptocurrency is derived from the term cryptography, which means all transactions are cryptic and coded. A hack into the system is as possible as a bank robbery, but that doesn't make either of them unsafe. In case you’re worried, there are still a number of ways through which you can double down on security, such as using offline wallets.
You can learn more about all the intricacies of investing in crypto with Kool Kanya’s Finance Pass. Learn about investments, taxes, insurance and everything in between by simply signing up for this extensive course. So come ace your personal finances and #RaiseYourPower.
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