Cryptocurrency is an enigma. For supporters, it’s the money of the future, with the potential to replace standard currencies. On the other hand, for critics, it’s a bubble that is about to burst. 

So, which is it? And, the bigger question is – should you invest your hard-earned money in cryptocurrency? 

As Warren Buffet says, “Never invest in a business that you cannot understand.” In this guide, we walk you through the basics of cryptocurrencies – what is it, how it works, whether cryptos are a good investment so that you can make an intelligent decision after weighing all the pros and cons. 

What is cryptocurrency? 

Cryptocurrency is decentralised digital money that is designed to be used over the internet. Cryptocurrencies are not available physically. They are digital assets. 

Bitcoin, launched in 2008 by the anonymous creator Satoshi Nakamoto, is the world’s first and most popular digital currency. It remains the biggest and most widely known cryptocurrency. 

Since then thousands of other cryptocurrencies like Ethereum, Ripple, Cardano, Dogecoin, and numerous others have grown as digital alternatives to paper currencies issued by different countries. 

Additional Reading : How To Invest In Cryptocurrencies Safely? A Beginner’s Guide

Here are some key features of cryptocurrencies:

  • Bitcoin remains the most popular cryptocurrency, followed by Ethereum, Bitcoin Cash, Litecoin, and most recently EOS, Ripple, ZCash, Tezos and Dogecoin. Some digital currencies use the same core technology as Bitcoin, while others work using innovative technologies. 
  • The standout feature and biggest appeal of cryptocurrencies are that they are not controlled by any organisation or individual. Unlike regular paper currencies issued by various national governments, cryptos are not issued or controlled by any central authority or government. They are open-source and run on a network of computers. They are available to anyone who wants to participate. 
  • You can transfer cryptos online globally 24/7 without the need for middlemen like a payment processor or a bank. If no central authority is involved, how is cryptocurrency secure? 

This brings us to the next section, 

How do cryptocurrencies work? 

Cryptocurrencies work on a technology called the blockchain. Each cryptocurrency has its blockchain network, and the network constantly verifies and reverifies every transaction made using the cryptocurrency. 

You can think of the blockchain as a bank’s ledger or balance sheet. But, the significant difference between the bank’s ledger and the blockchain is that the blockchain is not owned by any single authority – a country, a company or a group of individuals. Anyone who wishes to participate in the blockchain can become a part of it. Also, the crypto blockchain is distributed across a digital network – making it completely decentralised. 

Let's take a closer look at the working of the blockchain:

The distributed ledger that contains records of transactions of a cryptocurrency is known as the blockchain. The blockchain comprises several individual blocks that hold information regarding transactions. The information is time stamped and linked to the previous and subsequent blocks. All participants in the blockchain network can verify the ledger, thus making it immutable and highly secure. 

The blockchain is spread across a network of computers. Each node constantly verifies the information in the blockchain. This means there is no central database, central vault or entity that can be manipulated, stolen or hacked, making the currency 100% secure. 

Why is cryptocurrency hailed as the future of money? 

Compared with traditional currencies and other assets like gold, cryptocurrencies have innovative features that make them stand apart. Here are the critical elements of cryptos that make them so popular:

  • Portability – you can transfer cryptos to anyone, anywhere in the world, 24/7, all using a mobile app or your computer. 
  • Scarcity – There is only a limited supply of cryptos in the world. This means it’s a scarce resource, which drives up its value. 
  • Security – No one authority controls cryptos. It represents a fair currency that is available for all. 

These key features make crypto supporters believe that digital currencies are the future and the best alternatives to traditional paper currencies controlled by governments and banks. 

How many cryptocurrencies are there? 

While Bitcoin is the most popular and widely-known cryptocurrency, more than ten thousand other cryptocurrencies are traded publicly. With the popularity of digital currencies, more and more cryptos are launched and traded by crypto adopters across the world. As per market estimates from CoinMarketCap.com, the current value of all cryptos is a whopping $1.4 trillion, and the market value of Bitcoin is pegged at $630 billion. 

Top 10 Cryptos in the World in Market Capitalisation 

As per CoinMarketCap.com, the following are the ten largest cryptos in the world. 

Cryptocurrency

Current Market Capitalisation

Current Value

Bitcoin

$630 billion

$31,859.22

Ethereum

$254.4 billion

$1880.65

Tether

$62.2 billion

$1.00

Binance Coin

$48.6 billion

$292.93

Cardano

$43.7 billion

$1.21

XRP (Ripple)

$29.3 billion

$0.5963

Dogecoin

$29.1 billion

$0.1908

USD Coin

$26 billion

$1.00

Polkadot

$15.1 billion

$13.34

Uniswap

$12.6 billion

$17.14

Data as of 14 July 2021

How to buy cryptocurrencies in India? 

To buy cryptos in India, you need to register and create an account in any popular crypto exchange. Some of the popular crypto exchanges in the country include WazirX, BuyUCoin, CoinDCX, Bitbns and ZebPay. Here are the steps to follow:

  • Download the app of the crypto exchange or visit the website. 
  • Enter your details, upload required documents and finish the KYC procedure. 
  • Once you have set up the account, you can add funds to the account in INR. 
  • Using the funds, you can start purchasing your preferred digital currencies. Some currencies require you to convert the funds to USD and then pay for your preferred digital coins. 
  • Use the Exchange tab to exchange your funds in USD (or INR) for your preferred cryptocurrencies. 
  • Once you have purchased the coins, they will be available under the Funds option in the app. 
  • For security reasons, it’s highly recommended that you move the funds from here to another online/offline wallet. 

Additional Reading : Cryptocurrency: How to Buy, Sell and Trade in India?

Welcome to the Exciting World of Cryptos 

By now, you would have an idea of cryptocurrencies, why they are popular, top cryptos, and how to purchase cryptocurrencies in India. Understanding crypto basics will help you make an informed decision and not flow with the crowd. Learn to decipher potential trends from risks and find out how to maximise your crypto investments to build a lucrative portfolio over time.  

FAQs

  1. Are cryptocurrencies legal in India? 

Cryptocurrencies in India are not outrightly banned (as of yet) as China has done. But speculators believe that the industry will witness effective regulations in 2021. 

  1. Is cryptocurrency a safe investment? 

If you’re looking for a traditionally safe investment like FDs, PPFs, then cryptos are not the best bet. These currencies have market volatility risks and are subject to price fluctuations. With that said, due to the growing popularity of digital currencies, cryptos are one of the most potential investments on the market today. 

  1. Is it possible to convert digital currencies to INR? 

Yes. Most crypto exchanges allow you to convert your digital currencies into regular cash. You will have to add the coins to the wallet and sell it to get paid in INR. 

  1. Will I get arrested for trading with cryptos? 

India has more than 10 million active crypto investors. Anyone can purchase, sell or trade cryptos in India. So, it’s not illegal. But you have to remember that it’s still not regulated. It's expected that the RBI will come up with a regulatory framework for digital currencies in India soon. 

  1. Can beginners invest in cryptos? 

Yes. Though it may seem technical, investing in cryptos is relatively easy, thanks to the availability of user-friendly crypto exchanges that provide you with a seamless platform to buy, trade, and sell cryptos. So, crypto investments are not just for the technically adept but everyone.