In recent times we have been watching so many memes and news about bitcoin. Furthermore, many people are even investing in bitcoin which is a cryptocurrency. Well, cryptocurrency is not rocket science nor is it complex. If you are interested in cryptocurrency and you want to invest in it you do not need to think that it is not something you can not understand. Therefore in this article, we are going to break down cryptocurrency and make it easier for you to understand.
Cryptocurrency is a kind of digital currency that operates in a decentralized model. It means nobody regulates anything on the network and it is basically the people who are in charge of their own transactions. However, it is not like a pyramid network and is a lot more safe and convenient.
For instance, one person who lives in India wants to send money to another person who stays in the USA. In this scenario, the Indian person can not directly send the money as the USA will not accept INR. Hence the person needs to take help from a bank to convert his rupees into dollars. Too much work isn’t it? Meanwhile, cryptocurrency here will delete the bank between the two people. With the help of cryptocurrency, an Indian person can directly send money to his friend staying in the USA.
How does it work?
As we already know that there is no third party involved here and no bank keeps a record of your transaction. Therefore, a question arises that without authority, who will track your transaction? Here comes the role of blockchain. Meanwhile, a blockchain means a chain of blocks that will keep following your transaction. And the way you have passbooks in banks, we have ledgers in cryptocurrency. So, the blocks contain these ledgers (or passbooks) of our transactions the same way a bank passbook does. Once a purchase is confirmed in cryptocurrency, the sale is added to a block on the distributed ledger.
We are now aware of the fact that there is no government, bank, or third party in this process. There are thousands of smart people out there who keep records of these ledgers. Now the question is when thousands of people keep records of ledgers at different times, what will keep them in sync? Meanwhile, every time someone makes a transaction, the person needs to inform everyone through the decentralized digital network. After that, people add it into their ledgers. Along with that, if someone is sending you cryptocurrency, the person has to announce it as well and that is how everything stays in sync.
Is cryptocurrency safe?
What if someone else tries to claim your transaction as theirs? Is it safe to use cryptocurrency?
Well, yes cryptocurrency is safe as there are private keys and public keys to keep your transaction safe. One private key is assigned to one person. In simple words, the private key is like a password that helps you in keeping your record safe until you decide to access it. Therefore it is unique and nobody can copy it. So if you are making a transaction on the blockchain network you will use the private key to declare the transaction. Similarly, the other person can use their public key to confirm your transaction. And if someone else is announcing their transaction on the blockchain network, you need to use your public key to validate their transactions.
What if you make a transaction on the blockchain and someone fails to verify it? In that case, will your transaction fail? Who will verify the transaction? The answer to this question is people who verify the transaction first get paid. Since they get paid there is an incentive behind verifying the transactions and therefore, no transaction remains unverified or unconfirmed. The whole process is called mining. However, mining is a very popular process and one needs a supercomputer to do it.
The history of miming
When cryptocurrency was new and not so popular, people used to use their personal computers that had CPUs. But once the cryptocurrency got popular and more people started mining, the competition increased. Therefore their CPUs were not so effective. Hence the people moved to GPUs. Later on, FPGA came into the mining world, and currently, the miners have been using the ASIC (Application Specific Integrated Circuit (ASIC). Hence the one who verifies the transaction quickset gets rewarded with a certain percentage of cryptocurrency.
- No paperwork nor intermediary, there is no need for such things in cryptocurrency. Easy transactions are one of the best parts of cryptocurrency.
- There are no geographical barriers to cryptocurrency. No matter wherever you are, you can make your transaction to any corner of this world without taking the help of any third party. Moreover, it is just you and the one you are making the transaction with.
- It is a fast process. In cryptocurrency, there is no need to spend extra money for a bank or any other mediator. Therefore, users can easily transfer payments to each other’s wallets with very low transaction fees.
- As cryptocurrency trades all over the world 24/7, they are easily accessible. Hence, you only need internet access and one account to access cryptocurrency.
How to invest in cryptocurrency
At the beginning, it can be a bit confusing while figuring out how to buy different cryptocurrencies such as Bitcoin, Ethereum, Solana, or so on. Meanwhile, to buy any cryptocurrency you need to download the applications available on the play store.
For instance, CoinDCX, WazirX, Coinbase, Bitpay, eToro etc. Once downloaded one needs to verify your account through KYC. And it is a work of only a few moments. Following it, deposit the desired amount of money they want to invest. The step ends with finally buying the cryptocurrency.
Although investing in cryptocurrency has become a trend nowadays, there are few things one needs to keep in mind before investing. As every aspect has its risks, the same goes for cryptocurrency. For instance, it is volatile and the value changes rapidly over a short time. For example, the value of one Bitcoin was $64,000 in May this year but it dropped down to below $30,000 in the next few years. Henceforth, one needs to be careful and research-oriented before investing their resources into it.