What is Cryptocurrency? Pros and Cons of Cryptocurrency, History, Buy-Sell Cryptocurrency and How to Use

Cryptocurrency has become one of the popular digital currency for the Investment throughout the world. Most of you have question in your mind, What is Cryptocurrency? How to Mine Cryptocurrency? Cryptocurrency Price? Cryptocurrency a good investment? and so on

What is Cryptocurrency

Cryptocurrency is secured by Cryptography. It is a Virtual Or Digital currency. Cryptography security makes cryptocurrencymore secure by preventing fake and double spend transactions. Many cryptocurrencies are based on blockchain technology as they are decentralized network. Disparate network of computers enforced a distributed ledger.

Cryptocurrency renders theoretically immune to any manipulation Or Government interference as they are not issued by any government authority this is the one of the great feature of cryptocurrencies.

Lets Understand Cryptocurrency

Digital or Virtual Cryptocurrencies are underpinned by cryptographic system. They provide secure online transactions without any third party.

Elliptical curve encryption, hashing functions and public private key pairs — such entries are safeguard by cryptographic system. “Crypto” refers to the several encryption algorithm.

We can purchase cryptocurrency on any cryptocurrency exchange platform, it can be also mined and get rewarded for work done on blockchain.

Many merchants and retailers accept cryptocurrency but not in all shops they accept it, even the popular one like Bitcoin also hardly used for any digital transactions. Some ecommerce businesses accept cryptocurrency and some not.

Cryptocurrency and Bitcoin accepted by some stores include —

• Magento

• Overstock.com

• eGifter

• Shopify

• Woocommerce

• Bigcommerce

Why ecommerce businesses should adopt Cryptocurrency Or bitcoin payment?

Accepting Crypto in the form of payment for any store can help you to reach more customer, faster transactions and increase the sell.

Cryptocurrency and Bitcoin accepted by some merchants include

• AMC Theaters

• Namecheap

• Microsoft Store

• Rakuten

• Shopify

• ExpressVPN

• NewEgg

• Overstock

However, price of cryptocurrency have made them popular as investing instruments and trading. It is also used for cross border transfers.

Blockchain in Cryptocurrency

Blockchain technology is the center for Cryptocurrency or Bitcoin functionality and appeal. As the name indicates, blockchain is a set of connected blocks with information over online ledger. Set of transactions store inside each block and it gets individually verified by each miner/validator over the network.

It is difficult to forge the transactions histories if the new block is not verified by each node before any confirmation.The Online ledger content must be agreed upon by a computers that maintain the ledgers or individual node network.

Blockchain technology is really useful technology for all the financial, medical industries, supply chain and many more. In crowdfunding and online voting process, blockchain is used to make these processes easy, simple and fast.

Financially giant institute such as JPMorgan Chase & Co. is also making use of blockchain technology to minimize the transactions cost using streamlining payment process.

Type of Cryptocurrency

Several Cryptocurrencies were invented to facilitated the work done on blockchain. For example – Main motive behind designing Ethereum’s ether, is to be used as payment to validate the work completion on blockchain. Many cryptocurrency exchange are used to buy and sell all cryptocurrencies.

In September 2022, when blockchain changed to proof-of-stake then Ether (ETH) has been assigned Blockchain staking mechanism as a additional responsibility.

Ripple’s XPR is used by banks, which was invented to facilitate any transactions between different geographics.

It is important to understand type of cryptocurrencies as there are several cryptocurrencies available in the market which can make you confused. Understand that if you are investing in any coin, whether it is worth to invest in that coin? whether it will profitable in future? or does investing in it fullfill any additional purpose? These points needs to be analyzed before investing in any cryptocurrency.

Most of the time, you hear about the coin’s name when you came across any cryptocurrency. Coin name is totally different from coin types.

Please find below list that contain some of the type with names of tokens in particular category

• Utility : There are two different utility tokens XRP & ETH both of them serves Different purpose/functions on their respective blockchain.

• Transactional : Bitcoin is one of most popular token which is used as a payment method.

• Governance : Uniswap token comes under governance which represent voting and some other rights on a blockchain.

• Platform : Application which are build to use blockchain are supported by platform token such as Solana.

• Security Tokens : Ownership of an assets is represented by tokens For example – stock that has been tokenized. MS token is the best example of security token. You will get partial ownership of millenium sapphire, if you buy any of these on cryptocurrency exchange.

Most of the cryptocurrency falls under these category, but if you don’t find any cryptocurrency under this category, that means you have found new category and that needs to be investigated before any investment.

Cryptocurrencies are Legal or Not?

Fiat currencies receive their rights from monetary or government authorities. Federal Reserve backstopped each and every dollar bill.

But not a single cryptocurrency is backed by any private or public bank/entities due to this it become difficult to make any legal status case throughout the world in different financial jurisdiction. Cryptocurrencies are mostly functioned outside any financial services or infrastructure. For the daily transaction and trading uses cryptocurrencies legal status has implications.

In June 2019, the Financial Action Task Force (FATF) has suggested that any cryptocurrencies wire transfer should be subjected to the Travel Rule requirements which required AML compliance.

All Cryptocurrency Exchange platforms operating in any country collect the customer information and wire transfer details due to this concern china has banned cryptocurrency exchange platforms and mining within China’s border. Bitcoin is defined as a legal property by Japan’s Payment Services Act (JPSA).

India is formulating the framework for cryptocurrencies, to make is secure for Indian people for any bitcoin/cryptocurrency investment. In European Union, cryptocurrencies investment is legal. “Financial Instruments” must be qualified by derivatives and other product that uses cryptocurrencies. In June 2021, market has been released in Crypto Assets (MiCA) Regulations that provide safeguards for regulation and also set the rules for the vendors and different companies that provides financial services using cryptocurrencies.

Cryptocurrencies are legal in Europe but they set Crypto Asset regulations for safe use of cryptocurrency.

United State has the biggest and most sophisticated financial market in the world, Cryptocurrency and Bitcoin future is available on Chicago Mercantile Exchange.

Securities and Exchange Comission (SEC) stated that Ethereum and Bitcoin were not securities. In September 2022, Gary Gensler stated that cryptocurrencies are securities. This statement implies status of cryptocurrency may be subject to regulations.

Important

Even if cryptocurrencies are treated as form of payments but Internal Revenue Services (IRS) consider it as a property and financial asset for tax purposes. If you buy or sell cryptocurrencies and make some profit out of it then as per the rules you have to share some of the profit to government. How IRS apply taxes on digital assets either based on Ordinary income or capital gains is totally based on taxpayer person who held the cryptocurrencies and his cryptocurrencies usage.

Does Cryptocurrencies are Safe for Investment?

Many unwanted activities like hacks, bugs and scams, investor lossed huge amount of money due to this cryptocurrencies reputation is unstable. Although the underlying cryptocurrencies are more secure but it has some technical complexity. It is little hazard for the new user to store and use crypto assets.

Speculative assets has some market risks in addition to that cryptocurrency investor should be aware of the following risk factors

• User Risk

  Once the cryptocurrency transactions initiated, you cannot reverse or cancel that particular transaction unlike the traditional finance. According to the official data, due to incorrect sending addresses or lose of password, one fifth bitcoins/cryptocurrency are not accessable.

• Regulatory Risk

  Some cryptocurrency regulatory status is still not clear. Many governments are trying to regulate them as a currencies, security or both. Sudden change in the regulatory status could be problematic to sell and buy cryptocurrencies also can cause sudden market drop. Regulatory status should be change stepwise as per the guideline provided by government.

• Counterparty Risk

  Many merchants and investors are depends on crypto exchange to store the cryptocurrencies. As cryptocurrency exchanges are a third party platform, it is possible that it might hacked by any hacker that could result in loss of cryptocurrency for the investors and merchants. They could loss entire investments.

• Management Risk

  There are some protections against unethical and deceptive management practices due to lack of coherent regulations. Many investors paid lots of money to the management teams to deliver the product but investors lost huge amount of money as the management team failed to deliver the product.

• Programming Risk

  Automated smart contracts is used by many investors and lending platforms to control the user deposit movement. This platforms are totally based on programs, there might be a bugs in the program which is helpful for hacker to hack the investor money. This is the programming risk for the investors and lending platforms as they are using such program based products.

• Market Manipulation Risk

  When it comes to cryptocurrencies, then market manipulation is the substantial problem with organizations, influential people and exchanges acting unethically.

Despite of these risks, cryptocurrencies total market capital is rise to over $1 trillion. Many people have been able to create substantial fortunes by investing in early stage cryptocurrencies, despite of knowing assets speculative nature.

Advantages and Disadvantages of Cryptocurrencies

Intention behind cryptocurrency invention is to revolutionize financial infrastructure. Tradeoffs are involved with every revolution. Present state is the development of Cryptocurrencies, there are many differences between decentralized system with cryptocurrency and its practical implementation.

Few Advantages and Disadvantages of Cryptocurrencies are as follows

Advantages

• Can be used to generate returns

• Remove Third Parties

• Removes single point of failures.

• Remittance are streamlined

• Easier to transfer funds between parties

Disadvantages

• Off chain security issues

• Expensive to participate in a network and earn

• Transactions are pseudonymous

• Become highly Centralized

• Prices are very volatile

• Pseudonymity allows for criminal uses

Cryptocurrency Advantages Explained

• Investing in Cryptocurrency is profitable. From past few decades cryptocurrency become more popular and it’s market have skyrocketed in value, at one point it reached almost $2 trillion. As of january 2023, Bitcoin market value was more than $450 Billion.

• It does not use any third party mediator for any transactions as a result cryptocurrency transfer between any two parties become more faster than usual transactions. The best example of decentralized transfers is the Flash loan in decentralized finance. These loans are executed within seconds as it processed without backing collateral and also used in trading.

• Cryptocurrencies worked as decentralized paradigm for money. Banks and monetary institutions such centralized mediator cannot enforce any transaction policy for transactions between two parties. Possibility of single point of failure gets eliminated by system with cryptocurrencies. Single point of failure such as a large banks, setting off cascade of crises around the world, one triggered in United State year 2008, by failure of institutions.

• Most prominent use case of cryptocurrency is tested by remittance economy. To streamline money transfer across the borders, cryptocurrency like Bitcoin work as a Intermediate currencies. Fiat currencies get converted into bitcoin Or any other cryptocurrency and transferred across the borders, after that it gets converted into subsequent currencies. This method reduce the cost to streamlines the money transfer process.

• Cryptocurrency provides easier and faster funds transfer directly between the two parties without any third party interference like credit card company or bank. Public keys and Private keys are used to secure such decentralized transactions, also proof of stake and proof of work such incentive systems are used.

Cryptocurrency Disadvantages Explained

• Exchange and wallets repositories are store by Off-chain crypto related keys, Even though blockchain and cryptocurrencies are highly secure, there might be a chance for hackers to hack exchange and wallet repositories. So many cases are recorded in past saying hacker hacked exchange and wallet repositories that resulting in loss of investors money which worth a millions dollar coins.

• One of the importance of Cryptocurrency is anyone can mine crypto with the help of computer with an internet connection. But mining popular currencies are not that easy, it requires more energy which is equal to entire country consumes. Mining concentrated among the large company whose revenue is in billion dollars due to Unpredictability of mining and Expensive energy costs. Only 2% bitcoins out of 4,882 opened from 29-Dec-2022 to 29-Jan-2023 by unknown addresses and remaining 98% are opening by mining pools.

• Cryptocurrencies are Pseudonymous even though they claims it as a anonymous payment form. Agencies like Federal Bureau Investigation (FBI) can investigate the digital trail leave by them so there is a possibility for the authorities and government to track any financial transactions.

• Cryptocurrency wealth is distributed between the numerous parties present over the blockchain network, it meant to be decentralized system. 100 addresses can hold only 12% of total value and circulating bitcoins, this proves that bitcoin/cryptocurrency are highly concentrated.

• Public market cryptocurrency trading can experience price volatile. For example, bitcoin market rised to high and hit $65,000 in November 2021 and suddenly in the next year it crashed to $20,000. This why many investors, miners and trusted people considered cryptocurrency as a speculative bubble.

• Cryptocurrency become very popular tools for the criminal activity such as illicit purchases and money laundering. Dread Pirate Roberts case is popular and well known case who use to sell drugs on dark web also, hackers are also interested in crypto coin they can hack exchange and wallet repositories and many more to steal the coins.

How to Purchase Cryptocurrency?

There are many cryptocurrency platforms are available in the market like Coinbase, Apps like cash app used to buy cryptocurrency, you can also buy it from any broker. You can also invest in cryptocurrency using financial derivatives like CME and other instrument such as ETFs and bitcoin trusts.

What is the point of Cryptocurrency?

Cryptocurrency promises faster and cheaper transactions between two parties without any third party intervention, it is new paradigm for money. Decentralized architecture and it’s technology help in exchange transactions that result in independent transactions without any interference.

Most Popular Cryptocurrency in the World?

Bitcoin is one of the most popular Cryptocurrency followed by other like Ethereum, Solana, Binance Coin and Cardano.

Is Cryptocurrency Secure?

In past SEC has stated that Ethereum and Bitcoins are the two most popular Cryptocurrency by market capital and they are mot secure. In September 2022, Gary Gensler SEC chair person again stated that cryptocurrencies are safe and ask their developer to start crypto registration. He also clarify that he is speaking for himself not on behalf of SEC.