What is Cryptocurrency and How Does it work?

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What is Cryptocurrency and How Does it work?

Now the trend of a new payment system is increasing in the world; cryptocurrency. Perhaps by now everyone must have heard about Bitcoin, which was the first cryptocurrency. According to Coin Lore, there are more than 5,000 types of cryptocurrencies.

Most of the people have heard about Cryptocurrency but, have not understood it completely, what is Cryptocurrency? Is it safe and how can you invest in it?

Cryptocurrency Meaning

Crypto means secret (secret or confidential) and currency means currency, money or money that we use to buy and sell. That is, it is a secret or private digital currency.

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The term Cryptocurrency is derived from encryption techniques called “cryptography”, which are used to secure the network.

To understand cryptocurrency well, we need to know about some of the terms used in it:

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Ledger: The document used to keep track of all financial transactions (debits and credits) is called Ledger.

Peer-to-Peer network: This network is formed when two or more PCs are connected and share resources without any server computer.

Blockchain: It is defined as a decentralized, distributed ledger that records digital assets in an immutable and transparent manner.

Cryptography: A method of information and communication through the use of code, so that only those to whom this information is sent can read and process it.

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Mining: The process of verifying transactions in cryptocurrency and adding them to the public ledger is called mining. The people who perform this task are called “miners”, who solve a complex computational problem.

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What is cryptocurrency?

Cryptocurrency is digital or virtual, private currency, which is secured by cryptography. This cryptocurrency is based on Blockchain technology. Its most important feature is that it is not controlled by any country, government or authority. It is a decentralized network, away from government control and interference.

Cryptocurrency Example: Bitcoin, Dogecoin, Ripple, Ethereum etc.

Crypto currency was introduced in 2009 which was “Bitcoin”. It was made by an engineer named Satoshi Nakamoto from Japan. It was not as popular in the initial period, but gradually its rates started touching the sky.

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What is Blockchain?

Blockchain is a decentralized technology that is spread across multiple computers and manages and records all transactions.

In cryptocurrency, there is a network of many people and their computers, which maintains a public ledger. Any transaction done in this is updated in the ledger after it is validated by everyone present in the network. This technology is called blockchain.

Let’s say there is a book where there is a record of the money you are spending every day. Here each page is like a block, and the entire book is a blockchain.

To prevent fraud, one of two main validation techniques is used to check each transaction: proof of work or proof of stake.

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How does Cryptocurrency work?

When we transfer Cryptocurrency from one computer to another, then it gets updated in the public ledger. If any one organization or one person operates this ledger, then he can error manipulate it. That’s why many computers and people together maintain it.

So that if one person tries to tamper with it, then that data will not match with all other computers and that person will be caught. It works under the peer-to-peer network and the technology used for this is Blockchain.

Blockchain acts like a bank. All the transactions done in this are recorded in the blockchain. This technology is monitored and tested by some people through powerful computers. This is called the mining process of cryptocurrencies.

Just like the job of a clerk is done in a bank, in the same way the people working are called miners.

These miners, under whose supervision the mining process is done, it is not such an easy task. For this, they need special computers, software and have to solve some complex mathematical codes. For this work, the miners are rewarded from the same currency.

There will be a question in your mind that if this ledger is being maintained in every computer then is there any privacy in it? Yes, Cryptography is used for this, in which everything is coded.

After the mining process is completed, comes the exchange process, in which cryptocurrencies are transferred from one account to another. When buying, selling or trading through cryptocurrencies, there is some wallet in which this store is kept.

In every cryptocurrency, it is decided how many coins will be generated in it (Bitcoin 21 million). Therefore the price in this currency depends, above its demand.

Advantages of Cryptocurrency

  • Since cryptocurrencies are completely secure, the chances of fraud are very low.
    The transaction cost is very less as compared to the bank.
  • You can transact at any time of the day or night, and there is no limit on purchases and withdrawals.
  • Currency exchange can be carried out abroad without fluctuations, and similar complications.
  • There are many digital wallets, due to which it is very easy to buy, sell and invest crypto currency.

Disadvantages of cryptocurrency

  • Cryptocurrency has no physical existence, it cannot be printed.
  • Since there is no central authority to control it, who will you go to if there is any inconvenience or complaint.
  • Its price sometimes sees a lot of bounce and fall, due to which investing in crypto currency is a risky deal.
  • If a transaction is done by mistake to you, you cannot get it back.

Is Cryptocurrency Legal in India

Many people want to know whether the use of crypto currency is legal or not! It depends on which country you are from, because crypto currency is still not recognized legal in some countries, but it is legal in India. But it is legal to invest, trade, but not a legal tender of money.

In 2018, RBI banned cryptocurrencies and banned all banks, financial institutions from allowing them to trade in them. After this, they could not transfer funds in bitcoin or any other cryptocurrency online from their bank account to any cryptocurrency exchange.

But in March 2020, the Supreme Court asked the RBI to remove this restriction. Since then many people started investing in crypto currency.

How to invest in cryptocurrency?

At present, there are many websites or apps with the help of which you can invest, buy, sell in cryptocurrencies like Bitcoin, Dogecoin etc.

  • CoinMarketCap
  • coinbase
  • wazirx
  • Unocoin
  • Zebpay

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I hope you liked the given information about cryptocurrency very much. If you have any question related to this then you can ask us in the comment below.