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What is Cryptocurrency?

Cryptocurrency is a type of digital currency, which means it does not exist in physical form like the normal paper currency. Crypto typically works under a decentralised control mechanism named blockchain, it's a publicly distributed record of transactions in digital form where each block contains information of transactions and is connected to the previous block thus forming a chain.

The reason why they are called “cryptocurrencies” is that they are created using a set of cryptography functions, including public-private keys, which secure the currency from third-party intervention and identification. This means that cryptocurrencies cannot be traced by authorities and their users can remain anonymous should they choose to be.

What are the benefits of Cryptocurrency?

Decentralized: A major benefit of cryptocurrencies is that they are mainly decentralized, meaning that, financial activities with crypto are conducted without the involvement of an intermediary, like a bank, government, or other financial institution.

Avoid middlemen (Easy Transactions): Crypto transactions can be made easily, at low cost, and in a manner more private than most other transactions. Using a simple smartphone app, hardware wallet, or exchange wallet, anyone can send and receive a variety of cryptocurrencies. Some types of cryptocurrencies, including Bitcoin, Litecoin, and Ethereum, can be bought with cash at a Bitcoin ATM. A bank account isn’t always required to use crypto. Someone can buy bitcoin at an ATM using cash then send those coins to their phone. For people who lack access to the traditional financial system, this may be one of the biggest pros of cryptocurrency.

Self-governed and managed: Governance and maintenance of any currency is a major factor for its development. The cryptocurrency transactions are stored by developers/miners on their hardware, and they get the transaction fee as a reward for doing so. Since the miners are getting paid for it, they keep transaction records accurate and up-to-date, keeping the integrity of the cryptocurrency and the records decentralized.

Protection from inflation: Inflation has caused many currencies to get their value decline with time. Almost every cryptocurrency, at the time of its launch, is released with a fixed amount. The source code specifies the amount of any coin; like, there are only 21 million Bitcoins released in the world. So, as the demand increases, its value will increase which will keep up with the market and, in the long run, prevent inflation.

Secure & Private: Privacy and security have always been a major concern for cryptocurrencies. The blockchain ledger is based on different mathematical puzzles, which are hard to decode. This makes a cryptocurrency more secure than ordinary electronic transactions. Cryptocurrencies, for better security and privacy, use pseudonyms that are unconnected to any user, account or stored data that could be linked to a profile.

Currency exchange can be done easily: Cryptocurrency can be bought using many currencies like the US dollar, European euro, British pound, Indian rupee or Japanese yen. With the help of different cryptocurrency wallets and exchanges, one currency can be converted into the other by trading in cryptocurrency, across different wallets, and with minimal transaction fees.

What are the common features of Cryptocurrency?

Blockchain: A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.

Decentralized: There are no authorities controlling cryptocurrency flow or quotations. Virtual currency trading is not located in one single place. This prevents trading disruptions after hacking attempts. Transaction data is dispersed across the network as it is stored directly by cryptocurrency holders.

Anonymity: Transactions are tied to a random sequence of characters and not to the owners' identity, including personal or company data. The popularity of some vital currencies indicates the scale of demand and supply. It is practically impossible to link contracts with people or companies.

Mining: Cryptocurrency mining is the process where specialized computers, also known as nodes or mining rigs, validate blockchain transactions for a specific crypto coin and, in turn, receive a mining reward for their computational effort.

Transaction Speed: Transaction speed matters as it indicates which cryptocurrency is more efficient. Higher efficiency means that the blockchain underneath the coin is more capable of transferring data from one party to the other and confirming transactions. Transaction speed can be influenced by several factors, including block time, block size, transaction fees, and network traffic.

Security: Cryptocurrencies can be stored in special virtual wallets, secured with a private key. This means that only the holder has access to the accumulated funds. In order to increase security, virtual currency owners should incorporate encryption technology on their storage devices.

What are the considerations when investing in Cryptocurrency?

Legality: While crypto is welcomed in many parts of the world, some countries are wary of its volatility and decentralized nature. Some also perceive it as a threat to their current monetary systems while being connected about its use to support illicit activities. Despite its use for buying goods and services, there are still no uniform international laws that regulate cryptocurrency.

Maximum Supply: As a rule of thumb, the fewer coins are available to the general audience, the higher the value of the cryptocurrency becomes. This is especially true when the coin’s maximum supply has been reached: no more mining is possible and the market price reflects supply and demand.

Consensus Mechanism: A consensus mechanism is a fault-tolerant mechanism that is used in computer and blockchain systems to achieve the necessary agreement on a single data value or a single state of the network among distributed processes or multi-agent systems, such as cryptocurrencies. It is useful in record-keeping, among other things. A consensus mechanism in a crypto-economic system also helps prevent certain kinds of economic attacks. In the context of blockchains and cryptocurrencies, proof-of-work (PoW) and proof-of-stake (PoS) are two of the most prevalent consensus mechanisms to keep all nodes in the network honest.

Block Time & Block Rewards: Block time is the time required to create the next block in a chain. It is essentially the amount of time it takes for a blockchain miner to find a solution to the hash, the random series of characters that are associated with the block. A block reward refers to the number of coins you get if you successfully mine a block of the currency.

Security & reliability of crypto exchange/platform: There are several ways and places to invest in cryptocurrency, include exchanges and online brokers that offer crypto, as well as buying, selling, and storing cryptocurrencies. Even those familiar with more traditional investing platforms should be mindful that crypto often comes with different fee structures, narrower customer service options and an increased role for the investor in security.

Scams: The growth of cryptocurrency has caught the attention of all kinds of investors, but it has also caught the attention of scammers. Crypto scams most often aim to gain private information such as security codes or trick an unsuspecting person into sending cryptocurrency to a compromised digital wallet. Social engineering scams such as giveaways, romance scams, phishing, extortion emails, and others are a problem in broader society, but they are especially prevalent when it comes to crypto.

The Cost of Investing in Cryptocurrency

If you do decide to buy crypto, there are some technical and logistical decisions you’ll have to make.

Decide where to buy crypto: Cryptocurrency exchanges like Coinbase, Kraken and many others can get you started investing in crypto.

How to store your cryptocurrency: Are you going to keep your crypto in a hot wallet or a cold wallet?

Make your purchase: Decide how much you want to invest in. While a single bitcoin costs tens of thousands of dollars, the cryptocurrency (trading symbol BTC or XBT) can be bought and sold for fractional share.

Manage your investment: Determine your long-term plan for this asset.

Who invests in Cryptocurrency?

Individuals: A common reason for individuals to invest in cryptocurrency is the desire for a reliable, long-term store of value. Unlike fiat money, most cryptocurrencies have a limited supply, capped by mathematical algorithms. This makes it impossible for any political body or government agency to dilute their value through inflation.

Country: In advanced economies, cryptocurrencies are viewed by many in the financial world with suspicion. But in the developing world, there are signs that crypto is quietly building deeper roots. Especially in countries that have a history of financial instability or where the barriers to accessing traditional financial products such as bank accounts are high, cryptocurrency use is fast becoming a fact of daily life. As of 2021, Bitcoin officially became legal tender in El Salvador, making it the first country to adopt the currency. The move has turned the Central American country into the first national experiment regarding the use of the often volatile currency, which is increasingly popular among many investors and speculators globally. President of El Salvador says that elevating Bitcoin to the status of the legal tender will help many Salvadorans, approximately 70% of whom do not have bank accounts, to transition into the formal economy. This move is expected to make it cheaper and quicker for citizens to receive remittances from abroad.

Fund Managers: Fund managers are getting more comfortable with crypto as regulation looms and investment-grade infrastructure shapes up for the emerging asset class, with more traditional hedge funds reporting plans to boost their exposures and get in on the digital asset boom. Cryptocurrency hedge funds like Pantera Capital manages $6.4 billion in blockchain assets, and you must have over $100,000 available to be eligible to invest. That makes this fund best for institutional investors or people with very high net worth. This firm has been around since 2013, so it’s relatively old for a cryptocurrency hedge fund.

Banks: Cryptocurrencies are a vehicle with great prospects. They have the potential to outperform conventional banking products while offering greater efficiency, less bureaucracy, and more transparency. Hence, some banks and financial services institutions have begun to build and launch their own entries in the ever-maturing blockchain ecosystem. Blockchain technology relies on algorithmic trust, and its decentralized system offers an alternative to the current system. Meanwhile, central banks have co-opted elements of crypto’s design and technology to explore the case of a digital currency issued by central banks. It is more likely than not at this point that central banks will begin to introduce their own central bank digital currencies (CBDCs). For example, Sweden’s Riksbank began developing an electronic version of the krona (called e-krona) after the country experienced a decline in the use of cash. And, the United States wants to introduce CBDCs in its monetary system to improve the domestic payments system.

Corporate: Introducing crypto may help a company spur internal awareness and help position the company in the important emerging space for a future that could include central bank digital currencies. For example, Tesla has bought $1.5 billion worth of bitcoin, and it explained that Bitcoin provides more flexibility to further diversify and maximize returns on cash. Tesla will also start accepting payments in bitcoin in exchange for its products. That would make Tesla the first major automaker to do so. The $1.5 billion worth of bitcoin will give Tesla liquidity in the cryptocurrency once it starts accepting it for payments. (Note: Tesla has stopped accepting Bitcoin as payment temporarily because the mining of the coins used too much fossi fuel-generated electricity.)

Related products to consider

Security softwares: Security software can improve your information security. Using your devices without security software, or using outdated solutions, leaves you exposed to a wide range of threats, including malicious hackers, spyware, viruses, and malware.

Multi-assets trading platforms: Multi-asset trading platforms are designed to meet the challenges of trading today. These platforms help you execute trades and build a strategy across the multi-asset offerings. It provides you with a unified vantage point for building and managing a diversified portfolio.

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