Cryptocurrency Guide 2022 – Things You Should Know Before Diving Deep

Cryptocurrency and Bitcoin have become the common talk of every town. But many people find it difficult to understand what it actually means. And most importantly, Is cryptocurrency a secure investment option?

To figure out the safe investment possibilities, you should at least know the basics of cryptocurrencies.

Let’s dive deeper to understand – what is Cryptocurrency, how it works, the advantages and disadvantages of cryptocurrency, how to buy it, secure storage options, should you invest in it or not, etc.

What Is Cryptocurrency?

Cryptocurrency is one of the forms of digital currency that anyone can buy, sell or trade from authorized platforms. It is not reliant on any government or banks to regulate it.

It uses a decentralized system to record all transactions and issue the new unit.

All the transaction records get stored in a public distributed ledger; a huge online database we can say.

This ledger is encrypted with a cryptography mechanism based on blockchain technology which ensures the security of transactions. And that is one of the main reasons cryptocurrency gained huge popularity in such a short span.

Bitcoin was the first decentralized cryptocurrency to create hype in the crypto market. It was founded in 2009 by the pseudonym developer Satoshi Nakamoto.

Satoshi Nakamoto is still a mystery today. No one knows who is this person (or group of programmers). This also excites people to peek into the mysterious crypto world.

Top 10 Best Cryptocurrencies & their Symbols

Bitcoin (BTC)

Ethereum (ETH)

Solana (SOL)

Terra (LUNA)

Binance Coin (BNB)

Cardano (ADA)

Tether (USDT)

 U.S. Dollar Coin (USDC)

XRP (XRP)

Avalanche (AVAX)

How Does Cryptocurrency Work?

Cryptocurrency works as a medium of exchange through the internet.

Basically, it has become a digital payment system that does not require any bank or third-party verification to complete the transaction. The peer-to-peer (P2P) network allows direct transactions between sender & receiver without the involvement of any central authority.

To maintain transparency, cryptocurrency works on a distributed ledger technology (DLT) which is commonly known as Blockchain.

Every currency holder or participant can access the ledger and also own an identical copy of it. Any change or addition made to the ledger immediately reflects and is copied to every participant’s ledger. That immensely minimizes the chances of any type of fraud in cryptocurrency.

What is Crypto Mining?

The new unit of cryptocurrency is created through the mining process. This process requires advanced computer equipment to handle the intense processing power needed to get the crypto. Nowadays people are using Graphics processing units (GPU) to effectively manage the mining process.

In the crypto mining process, participants have to solve complex mathematical equations to generate the coins. It’s not mandatory to mint coins to own; a person can buy cryptocurrencies from a legit broker or a cryptocurrency exchange platform.

This currency only exists digitally or virtually and can be stored in digital wallets for future transactions.

Instead of carrying paper money (like Rupees, dollars, pounds, etc.) you can simply carry digital money in your digital wallet or paper wallet to do transactions. Due to the end-to-end encryption via blockchain technology, transactions remain secure.

In many parts of the world, people are using cryptocurrency to pay securely for online stuff.

Cryptocurrency Key

When you buy cryptocurrency, you do not own any tangible asset. You own a cryptocurrency key – a combination of letters and numbers. This key will help you to do further transactions in the crypto market.

For example – You want to buy certain assets in exchange for Bitcoin. You will access your wallet via the private key and do the required transaction without the involvement of any third party. These transaction details will get updated on every participant’s ledger which is in the network.

Advantages of Cryptocurrency

• Speedy transaction

• Decentralized system makes transactions secure

• Low transaction fees

• 24/7 accessibility

• Diversified portfolio option for investors

Disadvantages of Cryptocurrency

• No way to recover the data (or key) once you lose it

• Illegal deals/activities

• Irreversible transactions

• Extreme volatile market 

India’s stand on Cryptocurrency

On Tuesday 15^th March 2022, Minister of State for Finance, Pankaj Chaudhary clearly stated that RBI has no plan to introduce any cryptocurrency. And cryptocurrency is still an unregulated digital currency in India. So if you are thinking about investing in RBI regulated cryptocurrency, your wait is not over.

Previously while presenting Union Budget 2022, finance minister Nirmala Sitharaman had mentioned that 30% tax will be applicable on selling crypto for profit and 1% TDS will have to be paid even if it is not sold at profit.

How to Buy Cryptocurrency?

Currently, there are over 18000 cryptocurrencies present in the world. Some of them like Dogecoin, Bitcoin, Ethereum have gained huge popularity amongst the investors.

There are multiple platforms available on the web to buy or trade in crypto. Here are a few basic steps you have to perform,

Step 1: Select the broker or cryptocurrency exchange platform

The market is crowded with cryptocurrency exchanges, brokers, and payment services due to the hype of crypto. For beginners, cryptocurrency exchanges are the best platform to start with as they offer a variety of features required to make your first purchase.

Step 2: Sign up & verify the account

Once you have chosen the platform, Sign Up and verify your account. Some documents will be required to verify the account based on your region.

Verification is not mandatory for all platforms. In some places, you can buy it anonymously as well.

Step 3: Link the payment mode with the account

After a successful verification, you will have to select a payment method. You can connect your bank account, credit, or debit card to add funds into your account.

Step 4: Place the cryptocurrency order

Once you have added money to your account, you are good to place your first cryptocurrency order. There will be numerous crypto options for you to buy and trade. Do complete analysis before investing in any.

Step 5: Crypto Storage

You need to be very careful while choosing a crypto storage method. If you lose the code or key to access your account, you will lose your investment.

When you buy cryptocurrency, typically it gets stored in the wallet attached to the exchange. You can keep your digital assets there if you think the exchange is trustworthy.

But it’s recommended to store cryptos in a place where only you can access them.

Hot Wallet – Hot wallets are also known as online wallets. These wallets run on internet-connected devices such as laptops, tablets, or mobile phones. It sounds pretty convenient but the internet connectivity makes them vulnerable as there are high chances of cyber theft.

Cold Wallets – Cold wallets have no connectivity with the internet, consider them as offline wallets. You can store your digital assets on a USB drive or hard drive. These also include a risk, if you lose the key of your device, or you lost the device, in such a scenario you won’t be able to recover your cryptocurrencies.

Top 5 Crypto Exchanges/Apps for Beginners

Binance

WazirX

Coinbase

Gemini

eToro

Should I Invest in Cryptocurrency?

Cryptocurrency is a high-risk high-reward space. If you have some experience with stock trading and understand the volatility of the market, then you can consider diving deeper and start from a small investment in crypto.

But if you are completely a newbie to this field, you should avoid investing in cryptocurrency directly. Check with your financial advisor, and learn about the crypto industry first.

Cryptocurrency FAQs