The technology behind it?

The previous blog dealt with the basic evolutionary aspects of cryptocurrency. This currency interestingly has its functioning and mechanisms to work. The technology in which it works is referred to as blockchain technology. It works on peer-to-peer connections. This technology can also be used in health, education etc. wherever we need to deal with data.  

Blockchain technology behind cryptocurrency

Blockchain is a distributed ledger that contains all the data of transactions that you do with cryptocurrency. A ledger is a public place where the record of transactions exists. For instance: – If any transaction is conducted, every system that contains that ledger will record the transaction thus limiting any fraud here as every node will include it.  This is like the record book that banks keep but here it is completely decentralized and isn’t controlled by any authority. In other words, it works on the common consensus of users to use cryptocurrency. Those who maintain such ledgers are known as miners who get payment in the form of cryptocurrency only. 

There is a specific block that gets created with a public and a private key. Each block will contain the data of your transaction.  Public keys will be visible on the platform and private keys will be with you to match your identity there. It’s a kind of signature there that you use. Each block relates to the previous block with a specific code thus any alteration will tend to alter the entire chain there. This prevents any fraud there and makes it a safe platform for transactions.  

With this technology, the transactions can be done even by transcending the borders of countries. The number of cryptocurrencies is fixed beforehand thus making transactions depending on the demand and supply of the market. To use cryptocurrency using this technology, one must have a digital wallet that will store the public and private keys. 

Investment

 Because these cryptocurrencies are fixed in number, it depends on market demand and supply. For instance, when Tesla declared that it would accept Bitcoin as a medium of payment, the demand for Bitcoin suddenly increased. Thus, its value increased significantly. Thus because of the tendency of market fluctuations, it makes it an important platform to invest in and diversify our portfolio. 

Types of cryptocurrencies 

In 2024 nearly 8985 cryptocurrencies were active. Thus, making it a volatile platform for investment. The major and popular cryptocurrencies include: – 

1. Bitcoin 

It was the first well-known cryptocurrency introduced in the market in 2009. It started with an idea to have digital currency thought by Satoshi Nakamoto and was released in open-source software. There is a total of 21 million bitcoins existing in the market. Many countries also accept it as a medium of exchange. 

2. Ethereum 

• It is also an open-source cryptocurrency that enables the creation of smart contracts and decentralized applications (Daps). It uses its cryptocurrency, Ether, as a means of payment for transaction fees and services on the Ethereum network. 
  

  3. Litecoin 

  

•  It is also similar to bitcoins working on the same line but with faster transaction confirmation times.

4. Ripple 

International money transfers seem to be very costly through banks. Thus, ripple makes it easier cheaper and faster international money transfers through cryptocurrency. Ripple can be used to transfer any currency, including USD, EUR, and Bitcoin, and it can also be traded on digital currency exchanges. 

The legal status of Cryptocurrency in India 

The legal status of such a currency because of its decentralized nature is somewhat ambiguous. Earlier RBI issued several notices to investors regarding the risk involved in Bitcoin as it is not legal tender However in 2018 Supreme Court struck down the decision of RBI which bans financial institutions from dealing with Cryptocurrency. Also in 2022, the government imposed 30 per cent taxation on the income from cryptocurrencies. Also, the government is planning to have Central Bank Digital currency in future.  

Challenges involved regarding investments in cryptocurrency 

1. Investments in cryptocurrency should be with the known fact that the market here is volatile here. It means risk calculation plays a vital role when we want to invest here. Thus, heavy amounts or amounts of loan must not be invested in the market without prior calculation of risk 
2. There is apprehension of fraud as crypto wallets are suspectable to hacking attacks. Thus, one must use a secure wallet while engaging in such transactions 
3. The maintenance of such programs requires heavy machinery and powerful computers. It leads to huge electricity consumption that is sometimes considered as not good for the environment. 
4. Also, there is a lack of regulation. Thus, the government and legal apparatus will not be responsible here for any kind of loss through mechanism. 

In a nutshell 

Thus, in a nutshell, we can conclude that cryptocurrency is a status that is ambiguous in India. Although it is not a legal tender investments in cryptocurrencies are something completely legal and constitutionally guaranteed right. However, investments here must be based on proper risk calculations. 

References

Freepik, pexels, https://www.drishtiias.com/to-the-points/paper3/cryptocurrency-9