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What is a Cryptocurrency?

By July 8, 2020March 28th, 20224 minute read

If you have been following the news, you must have come across the term – cryptocurrency.

Ever since the price of bitcoin hit $20,000 in 2017, cryptocurrencies have become the talk of the town. You must have come across folks vouching vehemently for virtual currencies (used synonymously with cryptocurrencies).

But what are they exactly? What makes them so different from traditional and legacy financial systems?

Two words make up the word cryptocurrency – ‘crypto’ and ‘currency’. Crypto stands for cryptography. A cryptocurrency uses cryptography to successfully secure, conduct, and validate monetary transactions.

No individual or organization controls the creation and issuance of cryptocurrencies as they exist on distributed, decentralized networks called blockchains. Now you must be thinking, oh wait! Blockchain? Yes.

Cryptocurrencies exist on blockchains
Cryptocurrencies exist on blockchains, Source: Pixabay

What is Blockchain?

Blockchains basically consist of information packets called ‘blocks’ that are interconnected in a ‘chain’ type arrangement. Contrary to centralized ledgers maintained by banks or data repositories ‘controlled’ by software and networking behemoths, blockchain is a decentralized ‘peer-to-peer’ digital ledger. For a detailed understanding check out the video below:

How does a blockchain work

Modern cryptocurrencies employ blockchains but early cryptocurrency prototypes were a bit different. Let’s look at what they were like.

History of Cryptocurrencies

Cryptocurrency systems are not entirely new. Research and development on programmable money has been happening since the 1980s and early 1990s. In 1989, American cryptographer, David Chaum attempted a breakthrough with Digicash.

It was a cryptographic electronic money system through which users could withdraw money from a bank and designate specific encrypted keys to that money.

Users could also conduct monetary transactions through Digicash. Unfortunately, the cryptocurrency system didn’t survive for long and the parent company filed for bankruptcy in 1998.

Few more notable names like Wei Dai and cryptography pioneer Nick Szabo also tried introducing cryptocurrencies through “B-Money”, and BitGold but didn’t find much success.

The workable concept of a cryptocurrency finally took tangible shape with the inception of Bitcoin in 2009. Anonymous inventor Satoshi Nakamoto introduced its idea in the whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System.

Bitcoin’s peer-to-peer network is very similar to the file-sharing system like BitTorrent. No centralized authority controls the system.

Post bitcoin, many digital currencies have emerged. They follow different blockchain protocols that serve a variety of use cases. Some of them are:

  • Proof-of-Work (PoW)
  • Proof-of-Stake (PoS)
  • Delegated Proof-of-Stake (DPoS)
  • Proof-of-Weight (PoW)

Bitcoin, Ethereum, Bitcoin Cash, Litecoin, Monero, Dash, ZCash, Dogecoin, and 500 more cryptocurrencies follow proof-of-work protocols. Therefore, it makes sense to know how they work.

How do Proof-of-Work Cryptocurrencies Work?

As mentioned earlier, cryptocurrencies or digital currencies run on blockchain networks. Satoshi introduced blockchain as a distributed ledger concept that powers Bitcoin.

Blockchain ensures that all cryptocurrencies issued on the decentralized network are accounted for. And how? Senders and receivers are required to sign off on transactions through their own public and private keys.

Apart from this, transactions undergo strict verification. Cryptocurrency miners play a significant role in this regard. They use powerful computers to solve complex mathematical algorithms. This is the key to the entire verification process. The miner who solves the problem first gets to add the transaction to the blockchain.

In the process, the miner earns a set number of cryptocurrencies as a reward for the work done.

Miners sell these cryptocurrencies to cover their operations costs. That’s how these crypto-assets become active contributors in a proof-of-work blockchain-based economy. To understand the mechanism visually check out the video below:

The entire system is transparent right from the start till the end as every miner/ network participant has access to a copy of the blockchain ledger. All transactions are publicly visible which means that forging transactions through ‘double spending‘ is out of the question.

How to Buy Cryptocurrencies and from Where?

Cryptocurrency exchanges can serve as the most appropriate place to buy cryptocurrencies. At WazirX we offer a plethora of digital currency options for you to explore according to your portfolio budget.

In order to get started, you will need to provide your bank account details. It takes a few hours to verify the information shared from your end, after which you are all set.

You can go ahead and directly and buy any cryptocurrency using the funds from your bank account.

Knowing about cryptocurrencies can open doors to a whole new world of opportunities. You can explore options in cryptocurrency investment as well as blockchain development. If you think you want to dig deeper into the blockchain space, we got just the right thing for you here:

We hope this primer will give you a solid headstart in your cryptocurrency journey!

Further Reading:

How to Buy Cryptocurrencies in India?

How to Open a Crypto Trading Account in India?

4 Things to Consider Before Investing in Cryptocurrencies

What are the Business Benefits of Cryptocurrencies?

5 Cryptocurrency Scams and How to Deal With Them

4 Advantages of Blockchain Technology in the Cryptocurrency Domain

How to Select a Cryptocurrency Mining Pool?

What Is Cold Storage For Cryptocurrency?

Impact Of Covid-19 On Cryptocurrencies

What Is Cryptocurrency Market Cap? Why Is It Important?

How to Spot a Cryptocurrency Scam?

Cryptocurrency Benefits for Developing Countries

How To Select A Secure Cryptocurrency Wallet?

How to trade in cryptocurrency in INR?

Indian Cryptocurrency Market – What to expect in 2021?

What is Cryptocurrency Index Funds 2021? What does it mean in the Cryptocurrency Domain?

7 Important uses of Crypto Stablecoins you should know

How To Invest In Cryptocurrency Stocks?

Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.

How To Invest In Cryptocurrency?

There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is considered the procedure of verifying and adding transactions to the blockchain public ledger. Another option is via cryptocurrency exchanges. Exchanges generate money by collecting transaction fees, but there are alternative websites where you can interact directly with other users who want to trade cryptocurrencies.

Can I Invest In Cryptocurrency?

Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.

Are Cryptocurrencies Legal In India?

In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.

Is Cryptocurrency Legal In India?

In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India

How Cryptocurrency Works?

Cryptocurrencies use cryptography technology to keep transactions and their units (tokens) secure. Cryptocurrency works via a technology called the blockchain. A blockchain is a decentralized technology that handles and records transactions across numerous computers. The security of this technology is part of its value.

What Are The Best Cryptocurrencies To Invest In?

The best cryptocurrencies to invest in would be the ones you study and analyze in detail. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and many altcoins such as Tron, Ripple, Litecoin, etc.

What Is Cryptocurrency?

A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term "cryptocurrency" comes from the encryption techniques used to keep digital currencies and the network safe.

Is Pi Cryptocurrency Safe?

Pi Network (PI) is the newest digital token to catch the cryptocurrency community's interest, even before it has wholly debuted. Some users see it as a chance to get engaged in a cryptocurrency from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.

Are Cryptocurrencies A Good Investment?

Cryptocurrency has the potential to make you extremely wealthy, and the potential to cause you to lose your money. Crypto assets, like any other investment, come with many risks and potential rewards. Fundamentally, cryptocurrency is an excellent investment, particularly if you want to gain direct exposure to the demand for digital currency.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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