Bye-Bye Cash Age, Welcome Crypto Age?

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  • 09 May 2023

A cryptocurrency isn't like your regular currency. It’s a digital currency that runs on a blockchain. Meaning? No one controls it, it is available to everyone irrespective of the nationality, maintains a permanent record of all transactions ever committed and all the transactions are anonymous.

Essentially, Bitcoin and other blockchain-based cryptocurrencies are a form of virtual currencies - meaning, you can make only electronic purchases and transfers. Cryptocurrencies like Bitcoin and Ethereum have gained immense popularity thanks to these properties. While bitcoin is still the largest crypto by market capitalization, there are now some 10,000+ cryptos in existence.

Every single crypto purchase you make is immediately logged digitally on a transaction log that tracks the time of purchase and who owns how many of it. Imagine this transaction log as an audit trail. It basically contains every single piece of information. This digital transaction log is called 'blockchain'.

Put simply, the blockchain is like a bank. It is where your Cryptos are stored. It is nothing but a type of a digital ledger of transactions that is duplicated and distributed across the network of computers that are a part of the blockchain. What’s interesting about this system is that it records information in such a way that makes it almost impossible to hack or cheat.

Now, if there’s a bank and transactions, we need people to verify transactions, right? In the Crypto world, people who verify and update it each time a transaction is made, are called - Miners.

Mining is the process of bringing new crypto coins into circulation by solving complex mathematical equations. This process involves validating data blocks and adding transaction records to a blockchain. This isn’t simple though. Because, the electricity costs and system costs involved are enormous.

Miners are basically like bank tellers in that they stamp your transaction as ‘Approved’. And miner fees are similar to bank fees. The miner who successfully solves the puzzle is rewarded with Cryptos once the encryption is validated by other miners, and this process is known as “Proof of Work’.

Cryptocurrency can be purchased on peer-to-peer networks and many crypto exchanges out there.

The price of a cryptocurrency can be determined by its demand. Heavy demand from buyers will push the value of a digital coin up. Conversely, if a coin has a high supply with little demand, then its value will drop. Among other factors that influence the price of a crypto coin include — how useful the token is. A difficult mining process would mean it is more difficult to increase the supply of the coin and cause upward pressure on the price when demand is high.

While countries worldwide have different take and regulations on these digital assets, in the Indian Union Budget this year, the government proposed to issue its own Digital Rupee. Additionally, the Budget also proposed imposing a tax of 30% on virtual assets, effectively legitimising trading of private cryptocurrencies and non-fungible tokens (NFTs). This is broadly in line with the Centre’s plans to have a fiat digital currency, while disallowing use of private virtual coins as legal tender. Now, how this pans out going forward remains to be seen.

The Future

With the talks of the Metaverse future, one of the most important elements is the payments infrastructure. In a virtual economy, cryptocurrencies could play a crucial role. While digital currencies have quickly risen to prominence, experts have continued to caution investors about the volatile nature and unpredictability of cryptocurrencies.

We can speculate on what value cryptocurrency may have for investors in the coming time, but the reality is it is a very new concept, without much history on which to base forecasts. That’s why it’s important to only invest what you’re prepared for, stick to your strategies and not jump onto the bandwagon without understanding the crypto world well.

References: Investopedia

Times of India

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