Understanding Cryptocurrency
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Understanding Cryptocurrency: Everything You Need to Know

The sudden wave of cryptocurrency took not only the internet community but also the whole world by storm. Today, everyone is investing in cryptocurrency as it is touted as the future currency by many trade pundits. Everyone, from someone in their twenties to elderly wise men/women, is investing either lightly or heavily in different cryptocurrencies.

Well, if you haven’t felt the buzz yet or don’t understand all the fuss about cryptocurrency then this article is just for you! In this article, I will help you understand the whole concept behind cryptocurrency and explain what you could gain or loss when you invest in them.

What is Cryptocurrency?

Cryptocurrency is a type of digital cash designed to act as a medium of exchange. The whole concept behind this kind of digital currency uses cryptography for secure transactions, confirm and verify the transactions, and creation of new units. Hence, it is popularly known as cryptocurrency.

What is Cryptocurrency

The idea got popular mainly because cryptocurrencies are decentralized and don’t have a regulatory body or a centralized system such as electronic money or central banking systems. Instead of a centralized system, cryptocurrencies use blockchain, a sort of distributed ledger that manages all the transactions in a public transaction database.

Bitcoin was the first ever cryptocurrency produced, and it was done by either a group of people or an unknown person who calls himself Satoshi Nakamoto. The exciting thing is that this brilliant idea of digitally mining currency was conceptualized and launched on the web anonymously as open-source software in 2009.

Today, there are over 1300 different cryptocurrencies other than Bitcoin.

Should You Invest in any Cryptocurrency?

Currently, there’s an ongoing debate between trade pundits and Governments across the globe regarding the efficiency and stability of cryptocurrency. While many vendors across the United States have welcomed this new age currency, many countries have banned it.

The primary reason behind banning or staying away from this new change is the fact that the entire system of cryptocurrency is based on a decentralized network. Hence, there are many advantages of cryptocurrency, but at the same time, there are few loopholes too.

Advantages of Cryptocurrencies

People are investing in all kinds of cryptocurrencies today. Most of them are merely following the herd after witnessing the rise in the value of Bitcoin, whereas a few are convinced that cryptocurrencies will replace the entire physical currency and the current electronic payment system.

Advantages of Cryptocurrencies

Here are few advantages of cryptocurrencies:

Cryptocurrencies are 100% decentralized

There is no centralized network or regulatory body that owns or manages cryptocurrency. While it makes the whole idea volatile, it also makes it independent and free from any manipulation. Also, unlike the modern day currencies like dollars which are valued based on the GDP growth of their respective country, cryptocurrency doesn’t hold any such ties to a particular nation. Most importantly, there’s almost zero production cost as the miners who mine cryptocurrencies are already getting rewarded from the network.

Cryptocurrencies use blockchain technology

With a centralized network, your money is always at risk of getting stolen or hacked regarding physical or electronic system respectively. However, that’s not possible with cryptocurrencies. The entire concept behind cryptocurrencies relies on blockchain technology where the transaction data is distributed across the network in small bits. Even a single hub is compromised, the database remains unaltered, and your digital cash is always safe.

Minimal to No Transaction Fees at all

The great thing and I believe the reason behind the popularity of cryptocurrencies, especially Bitcoin is the fact that there’s no transaction fee whatsoever, unlike the centralized banking system. The network already compensates the miners. However, people using a third party service such as Coinbase, an online exchange system of Bitcoin. Such third party institutions are charging a fee for their service, but it is still deficient compared to the current banking systems.

No risk of Identity Theft

With credit card frauds prevalent since ages now, there’s always a risk involved when it comes to electronic money. Credit card systems rely on “pull” mechanism where the merchant swipes your card, and the system pulls the money from your account. On the other hand, cryptocurrencies eliminate such risk as it uses the “push” mechanism where you can just send what you want to the merchant or the recipient. Hence, everything is under your control with cryptocurrencies.

Access to Everyone

Thanks to the overall hype and instant popularity of cryptocurrency such as Bitcoin, today everyone with an internet connection can invest in them.

Disadvantages of Cryptocurrencies

With some perks, there are also few loopholes, but they can be quickly rectified.

Disadvantages of Cryptocurrencies

Here’s the list of cons of cryptocurrencies:

Admit it; Cryptocurrencies are volatile

Agree or not, the entire system of different digital currencies functions through various cryptocurrency exchanges instead of a central exchange. Such a system makes the whole campaign extremely volatile. Look around you, and you will see that everyone is either investing or talking about Bitcoins and other cryptocurrencies. The sudden hype has resulted in a 3,200% growth as of December 2017. Hence, investing in cryptocurrencies need patience and most importantly a big heart to lose at times.

Institutional investors are still not onboard

Being a decentralized system without any regulatory body, many institutional investors are staying on the sidelines when it comes to cryptocurrencies. Remember, these investors are quite influential in determining the right value and cryptocurrencies being an unregulated asset, these investors are still playing the waiting game.

Many countries have banned cryptocurrencies

While the internet has embraced this sudden wave of cryptocurrencies with both arms, many nations like Bolivia, Nepal, Bangladesh, Ecuador, Morocco, and Kyrgyzstan have banned cryptocurrencies entirely. And, the list seems to grow further as Russia is also considering the ban on cryptocurrencies.

Cryptocurrencies are overhyped

Believe it or not, the concept may be great but it is overhyped, and most cryptocurrency investors don’t even know what they are doing. Thanks to the significant rise in the value of Bitcoin, many people have begun investing not only in Bitcoin but also other cryptocurrencies available in the market currently. While the whole concept of digital currency may seem revolutionizing, the current value of cryptocurrencies is overhyped a bit too much.

What should you do?

If you are planning to invest in cryptocurrencies, then you must focus on something other than Bitcoin. Lately, Bitcoin witnessed a considerable slump, and many trade pundits are suggesting that it is the right time to invest in them as it will rise eventually. However, I will recommend investing in other cryptocurrencies instead of Bitcoin right now if you are a beginner.

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20 thoughts on “Understanding Cryptocurrency: Everything You Need to Know

  1. The other day my husband was talking about investing in bitcoins and I was not understanding a word of what he said. Thanks to your article that even a non-finance background person can also relate.

  2. This is such a detailed post about cryptocurrency. Thanks for sharing all these points as I don’t have much idea about it. Although heard a lot but confused about all the hype.

  3. Hearing alot about crypto currency but this post actually gives clear picture about it. Though it’s bit risky as decentralised system. But it can be opted out for good investment.

  4. A great article on crypto currencies. I see that a lot of research has gone into writing this article. Wonder if the bitcoin folks got in touch with u. If not, what inspired you ? Do you own any ?
    N yes, one shocking thing I understanding is that there are 1300 other cryptocurrencies. Do you know any that you can share ?

    1. This is a huge market. Off late I got to read a lot about these as Content writers like me are actually offered Bitcoins (smaller units like Satoshi and Microbits) as alternate remuneration. That is how my interest grew in knowing about this form of currency. I don’t own any as this, I believe is only to be traded with the spare money which you have (in case you lose). 🙂
      Litecoin, Zcash, Etherium, Monero etc are other forms which are doing very well today. In fact, I was planning to invite other blogger friends from Finance and otherwise, who are interested in doing articles on this topics covering the other form of such currencies. I would love to allow them to guest post on my blog under a separate and exclusive segment called Cryptocurrency Finance.

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