The concept of cryptocurrencies has quite literally taken the fin-tech world by storm. For beginners, the easiest way to understand it would probably be calling it ‘virtual money’ since that is one of its key features: its physical absence. Mostly, people who haven’t delved too deep into learning about it relate it to another word: Bitcoin, and yet another word: blockchain. Assuming that a reader is indeed a beginner, explaining the Blockchain system, first of all, would be the safest bet of explaining crypto in general to them.
A blockchain is an advanced system of managing transaction records. It’s a network that collectively maintains records of transactions. Each transaction done on this system is added chronologically and visible to everyone on the network – thus creating a shared digital ledger. Anyone who is a member of that public peer-to-peer network can verify data related to the sender and receiver. Further, blockchain uses cryptography to ensure that these records cannot be changed.
Cryptography refers to the science of security, employing encryption and decryption in order to protect information from third-party perusal. It is vastly employed in blockchain technology. It uses the technique of converting plaintext (normal text) into ciphertext (coded text) and then reversing the process, both with the help of aides called ‘keys’.
Now, finally, let us move to cryptocurrency.
Cryptocurrency and why it’s so popular
When you bring a financial system to a blockchain, you get cryptocurrency – a digital asset or currency that is regulated by a decentralized system online. When we say ‘decentralized’ we mean that users can directly trade with each other without the involvement of a third party (in the real world, usually a bank), meaning that they are immune to government intervention as well. Since everyone has a copy of this shared digital ledger that we call the blockchain – they are self sufficient to manage all transactions. They don’t need banks.
But why would anyone maintain this copy of transactions? What’s in it for them? What’s their incentive? That brings us to mining.
What is Cryptocurrency Mining?
Cryptocurrency mining is a process carried out by high-powered computers that solve complex numerical problems that are too difficult to solve by hand. By solving these problems, these computers earn the right to put transactions on the blockchain. Simultaneously, they are rewarded with cryptocurrencies as well. So that’s their incentive – there’s money to be made!
This method of generating new cryptocurrencies by solving a computational puzzle is known as bitcoin mining. Cryptocurrency mining is required to keep the ledger of transactions on the blockchain and also to ensure that the transactions that are taking place are secure and trustworthy. It’s how Bitcoin (and other cryptocurrencies) managed to eliminate the need for banks).
Another major feature is that cryptocurrency is that it can be anonymous. However, it is also completely transparent and trackable. Anonymous, because you can hold a crypto address without revealing anything about your identity in that address. But trackable due to the blockchain system it depends on, which is public. Further, transactions occur at the drop of a hat and with far lower fee charged than conventional financial systems. Also, the issues of double spending and other counterfeit malpractices do not exist with virtual currency.
Finally, it’s volatile, liquid, and rare. Things which make it very valuable indeed.
Bitcoin was the first cryptocurrency to be created by the mysterious Satoshi Nakamoto. After it came into existence and rose to astounding heights (in terms of price and adoption), a huge number of variants have cropped up with similar basic features. These are collectively called altcoins. A few examples are Ethereum, Litecoin, Namecoin, etc.
There are a lot of other terms which could also be inserted in order to get a more comprehensive understanding of the cryptocurrency world. Such as storage of crypto coins (in wallets), platforms for cryptocurrency transactions (exchanges), etc.
Bitcoin has proven to be a secure, reliable, and viable mode of the global transaction. Although cryptocurrency mining is a separate business with a broad technical scale, the general public is interested in trading cryptocurrencies. This has led to a lot of crypto exchanges opening up in India as well as new tokens being created too.
Current status of Cryptocurrency in India
As per the Government of India, there had been a practical ban on virtual currencies for nearly 2 years between 2018 to 2020. There is also talk of a new bill being introduced that may ban cryptocurrencies altogether and criminalize their trading and even their storage. However, there is some light at the end of this dark tunnel. Judging by recent comments from officials, the government is not opposed to the idea of crypto trading and the whole blockchain system, it wants to ensure complete security in doing so first. There is also speculation that a new cryptocurrency might also be in the works from the Government’s side. Further, despite government threats of a ban, transaction volumes are only increasing. Business is booming and everyone wants their piece of crypto cake.
So what’s the current crypto scene in India then?
You can buy it, You can trade it. You can speculate. There are some high-end exchanges available for these very purposes too. With the profits ushering in, it certainly looks like a good industry to be a part of. Not to mention, that we at Salt, are a dedicated faction working as a part of this revolutionary idea, making it much easier to maneuver yourself in the online world of cryptocurrencies. And that is pretty much a noob’s way around it.