What is Cryptocurrency And How Does it Work?

All About Cryptocurrency: What, How And Where?

Cryptocurrency, also known as crypto, is a type of digital or virtual currency that uses cryptography to ensure transactions. It is also known as digital currency or virtual currency. Cryptocurrencies do not have a centralised regulating or issuing authority, instead relying on a decentralised system to record transactions and issue new units, as is the case with traditional currencies.

What is Crypto currency?

The term “cryptocurrency” was coined because transactions in cryptocurrency are verified via the use of encryption. In other words, specialised coding is required for the storage and transmission of bitcoin data between wallets as well as between wallets and public ledgers. The purpose of encryption is to ensure the security and safety of data.

Unlike traditional payment systems, which depend on banks to validate transactions, cryptocurrency does not rely on banks to verify transactions. It is a person-to-person system that allows anybody, from anywhere, to make and receive money with relative ease. Instead of being tangible money that can be carried about and traded in the real world, cryptocurrency payments exist only as digital records in an online database recording particular transactions, similar to how credit cards work. Transactions involving cryptocurrency money are recorded in a public ledger when they are made via a cryptocurrency exchange. Digital wallets are used to hold digital cash.

Bitcoin was the first cryptocurrency, having been created in 2009 and being the most well-known to this day. Much of the interest in cryptocurrencies is driven by the desire to make a profit, with speculators pushing prices up to dizzying heights at times.

How Exactly Cryptocurrency Works?

Cryptocurrencies operate on a distributed public ledger known as the blockchain, keeping a record of all transactions that are updated and maintained by currency holders.

To manufacture cryptocurrency units, a procedure known as mining must be carried out, which requires the use of computational resources to resolve difficult mathematical problems that result in the generation of coins. Users may also purchase the currencies through brokers, then store and spend them using encrypted wallets, which are becoming more popular.

If you hold crypto, you don’t really own anything substantial in the traditional sense. It is a key that enables you to transfer a record or a unit of measurement from one person to another without the involvement of a third party you may trust.

Despite the fact that Bitcoin has been available since 2009, cryptocurrencies and blockchain technology applications are still in the early stages of development in terms of financial applications, with more applications predicted in the future. It is possible that bonds, stocks, and other financial assets will be exchanged in the future, thanks to new technological developments.

Procedure To Buy Crypto-

Some of you may be asking how to acquire cryptocurrencies in a secure manner and How does crypto currency work? For that, there are three typical  phases to complete the process. We’ve made a briefings of them in here:

Step 1: Selecting a publishing platform-

The initial step is to choose which platform will be used. In general, you may select between a regular broker and a cryptocurrency exchange that specialises in cryptocurrencies:

Brokers who operate in the traditional manner:

  • There are online brokers that provide access to purchase and sell cryptocurrencies, as well as other financial assets such as stocks, bonds, and exchange-traded funds (ETFs) and other digital assets. Such  platforms often have reduced trading prices, but they also have less crypto-related features.

Cryptocurrency Exchanges:

  • There are a plethora of cryptocurrency exchanges to pick from, each of which offers a distinct selection of cryptocurrencies, wallet storage, interest-bearing account alternatives, and other amenities. Many exchanges impose fees depending on the value of the assets traded.
  • Comparing various platforms, take into account which cryptocurrencies are available, what fees they are charging, how their security features look like, and what storage and withdrawal choices they are providing. Furthermore, look for any educational materials they may have been availing to you.

Step 2: Adding money to your account

  • After selecting your trading platform, the following step is to fund your account so that you may start making trades right away. Most cryptocurrency exchanges enable users to acquire cryptocurrency using fiat (i.e., government-issued) currencies such as the Indian rupee INR, US Dollar, the British Pound, or others, which they may pay for using their debit or credit cards — but the exact method varies from platform to platform.
  • Credit card purchases of cryptocurrency are deemed hazardous, and as a result, some exchanges do not accept them. Cryptocurrency transactions are also not permitted by certain credit card providers. This is due to the fact that cryptocurrencies are very volatile, and it is not advised to take the chance of getting into debt — or paying potentially hefty credit card transaction fees — in order to purchase specific assets.
  • Some systems will also allow ACH transactions and wire transfers in addition to credit cards. The payment methods that are allowed and the time it takes to deposit or withdraw money vary from platform to platform. Similarly, the time it takes for deposits to clear varies depending on the payment type used.
  • The cost of the service is a significant consideration. These include possible transaction costs for deposits and withdrawals, as well as trading fees. Fees may vary depending on the payment method and platform used, so it’s important to do your homework up front.

Step 3: Making a purchase order

You may place an order using the online or mobile interface provided by your broker or exchange. In order to acquire cryptocurrencies, you must first pick “buy,” then select the order type, input the quantity of cryptocurrencies you want to purchase, and then complete the order by clicking “confirm order”(Orders to “sell” follow the same procedure as “buy” orders).

There are a variety of different options for investing in cryptocurrency. Payment systems such as PayPal, Cash App, and Venmo, which enable users to purchase, trade, and store cryptocurrencies.

There are also the following types of investment vehicles to consider:

1. Bitcoin trusts: Shares in Bitcoin trusts may be purchased using a conventional brokerage account, much like stocks. Retail investors may get exposure to cryptocurrency via the stock market through the use of these vehicles.

2. Bitcoin mutual funds: There are Bitcoin ETFs and Bitcoin mutual funds to pick from, as well as Bitcoin ETFs that track different crypto currencies.

3. Blockchain stocks or exchange-traded funds (ETFs): You may also invest in cryptocurrency indirectly via blockchain firms that specialise in the technology that underpins cryptocurrency and cryptocurrency transactions. Alternatively, you might invest in stocks or exchange-traded funds (ETFs) of firms that are using blockchain technology.

The ideal investment choice for you will be determined by your investing objectives as well as your risk tolerance. Keeping that aside, the above procedure is the answer to your question of how to invest in cryptocurrency? 

Future of Cryptocurrency in India: What’s the next step?

All private cryptocurrencies in India, with few exclusions, are expected to be banned under the cryptocurrency law that will be proposed during Parliament’s winter session this year. Hence, the answer to the question, quote, “is cryptocurrency legal in India?” Is understood. And we’re just happy.

However, the exceptions are there to promote the underlying technology (Blockchain) and the applications it may be put to use to promote.

While the ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’ proposed a blanket ban, the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ makes no mention of banning. It is expected to be introduced in this year’s Parliament winter session. This is a reflection of the significant expansion and engagement in the Indian cryptocurrency sector.

As an asset class rather than a currency, crypto is likely to be treated by the government. The government will thereby be able to collect significant tax returns on crypto assets.

Leave a Reply

Your email address will not be published. Required fields are marked *