Cryptocurrency 101 - Things you should know

Now that everyone has started talking about it; it is about time that we unravel the mystery that surrounds cryptocurrency. Well, if you haven’t heard of this phrase before, you seriously need to consider your ‘current affairs’ quotient.

Is it a ponzi investment scheme? Is it basic digital currency trading? Is it worthy for long term investment purposes? Let’s uncover the ABCs of cryptocurrency and why it has become such a huge buzzword in the global financial market.

What exactly is cryptocurrency?

Cryptocurrency is a term coined using the combination of ‘crypto’ and ‘currency’ wherein crypto is a term belonging to the domain of computer science, having been originally taken from cryptography. As things stand, there is a wide array of cryptocurrencies active in the market or forms of digital cash, as they are often labelled. A cryptocurrency plays around with a decentralized system which includes generating, keeping and transferring of the well distributed ledger accessible and everyone for everyone.

1. How did it all began?
   Some of the earliest traces of digital currencies dates back to the 1990s wherein a certain fellow named David Chaum came up with DigiCash. It didn’t exactly turn out how it should’ve been. The first major crack at it was Bitcoin in 2009; which was the brainchild of Satoshi Nakamoto (supposedly a group of individuals). After its success, many cryptocurrencies entered the fray with an attempt to decentralize digital cash which includes the likes of Namecoin, Ethereum, Litecoin, to name a few.

2. As Unstable as the Weather
   The value of Bitcoin has been shuffling from the lows of 500$ to the highs of 2000$. Kind of explains a lot, doesn’t it? Basically, you want to stay away from anybody who tries to tell you to invest a certain amount in a cryptocurrency just because he/she knows it will go up. Do your own research and test the waters a bit before you take a proper plunge.

3. No Fundamental Backing Whatsoever
   Unlike any other currency in the entire world, cryptocurrencies haven’t been backed by a government or a central bank per se. In fact, there is no tangible parameter using which you can come up with a possible pattern or adjudge valuation. This makes it a 100% risk-filled game through and through.

4. Three Juggernauts – Bitcoin + Ethereum + Ripple
   Amidst the 900 cryptocurrencies that are well and truly alive, this side of the world is hands down dominated by Bitcoin, Ripple (XRP) and Ethereum. Even though ripple showcases least value in terms of up front buying cost, its market cap is increasing as the day passes by. Bitcoin, no doubt is the leader here but Ethereum as well isn’t too far behind.

5. Traces of Acceptance Worldwide
   Simply going by what it denotes doesn’t mean that they only come with online applications. Many shopping portals, multiplexes and restaurants have now started taking payments in the form of cryptocurrencies (not in India of course). Some of these are telltale signs that such currencies are here to stay.

6. Is it Legal?
   Well, this is like stating the elephant in the room. In countries like Saudi Arabia and Bolivia, the usage or mining of such cryptocurrencies has been black-flagged and punishable. In other countries however, this is an ambiguous issue; hence, totally legal for now.