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A cryptocurrency is a digital or virtual currency that is under the protection of cryptography making it practically impossible to counterfeit or double-spend. Almost all cryptocurrencies are decentralized networks created using blockchain technology which is a distributed ledger imposed by a network of computers. 

One of the most defining features of cryptocurrencies is that they aren’t mainly issued by any central authority, providing immunity to government intercession or manipulation. It is propagated as digital money that is based on blockchain technology and is secured by cryptography. 

Understanding Cryptocurrencies

Cryptocurrencies are digital money that is operated by cryptographic systems. They enable security and assure the reliability of online payments without the use of third-party intermediaries. The term “Crypto”  here refers to highly diverse encryption algorithms and cryptographic techniques that protect these entries, such as public-private key pairs, elliptical curve encryption, hashing functions, etc. 

The core of this technology could be traced back to the 1980s through invention of a “blinding algorithm”. The main agenda of the invention of this algorithm was secure, unchanged digital transactions, as it remains essential as well as fundamental to modern-day digital currency. 

During trading and investing in crytocurrencies, the access is fundamentally shared between its users and any specifications transmitted are transparent, prompt, and immutable here simply means that whatever blockchain records are there for good and cannot be altered or tampered with – not even by an administrator.

The purpose of centralised money is to raise regular money that we put into use, which is controlled and governed by the authorities such as The Reserve Bank of India or the Federal Bank of the USA. On the other hand, Decentralization means that in cryptocurrency has no indistinguishable authority that can be declared as responsible for administering rise and fall of a particular cryptocurrency in the market and due to the very fact, cryptocurrencies has many more characteristics over centralized money.

Some of the benefits of Cryptocurrency include the following:

  • The currency owners aren’t required to trust a single governing entity, as everyone on the web has the access to the same particulars that cannot be tampered with or altered with.
  • Data holds out to be accessible only to the users of the network and is excessively secured. Shared ownership also refers to all users’ sign-off on how authentic and accurate the data is, which means there is very low scope for data mismanagement or miscommunication considering it similar to a democracy.

A report by Chainalysis revealed Vietnam is the undefeated winner across rankings, gaining high on overall and inclusive crypto transaction value as well as on the payments made by individuals. The developing country’s incoming Cryptocurrency transaction value wasn’t far underneath that of much larger countries like India.

One of the reasons of cryptocurrencies gaining popularity in Vietnam and several other developing countries is that they are used as investment tools instead of other good options, according to the Chainalysis report. Though the population of Veitnam has been trying to preserve the value of their savings when local currencies are varying is another incentive to invest in crypto, targeting Venezuela, Argentina, and Turkey on the map of crypto adopters.

But what makes Cryptocurrency so special? The answer to that question is with the assistance of Cryptography, here’s how:

What is Cryptography?

Cryptography is the study of secure communications capabilities and techniques that recognize only the sender and conscious recipient of a message to view its contents. It is the method that safeguards all the data from unauthorised access with the assistance of encryption techniques. Most of the claims that blockchain makes, like privacy and immutability, are qualified through cryptography.  It has closely corresponded with encryption, which is considered to be the act of scrambling standard text into what’s known as ciphertext and then back again upon arrival. Apart from it, cryptography also counterbalances the obfuscation of the details in images with the help of techniques such as microdots or merging.

Types of Cryptocurrencies you can trade-in:

Though plenty of people use the words crypto, coins, and tokens interchangeably, it’s necessary to understand how exactly they vary from one another to gain knowledge and understanding of types of cryptocurrencies.

1. Bitcoin 

Bitcoin is the world’s first extensively accepted form of cryptocurrency. It is so popular that, there was a period when its name was a synonym with Cryptocurrency. Though plenty of potential investors need to know that bitcoins have become way more valuable, expensive and qualitative – in the year 2021, the price of one Bitcoin rose upto $68,000. Although, the great part of trading in Cryptocurrency is that, there’s no need for you to buy the entire coin, or more. You can also buy smaller fragments of it starting from $5.

2. Altcoin

In the wake of Bitcoin’s massive success, many other cryptocurrencies, known as “Altcoin,” have been set in motion. The purpose of altcoin is to substitute digital currency to bitcoin with some added utility for a limited period of time. The most popular in the ecosystem of Altcoin is Ethereum. It is considered to be one of the fastest-growing cryptocurrencies in the market.  Some Altcoins are replicas or forks of Bitcoin, while others are present-day fresh currencies that were constructed from scratch. These include Solana, Litecoin, Ethereum, Cardano, and EOS. By November 2021, the aggregate value of all the cryptocurrencies that were existing had reached over $2.1 trillion, where Bitcoin stood in for approximately 41% of that total value.

3. Crypto tokens

Crypto tokens are the digital assets that are constructed on another cryptocurrency’s blockchain. A cryptocurrency can be both a coin or a token, based on whether it’s the instinctual cryptocurrency for its blockchain or not. Though the major dissimilarity between the two is that Crypto coins have their underlying blockchains; whereas crypto tokens don’t. The concept of crypto coins vs tokens can be confusing to a large amount of the audience. At the first glimpse, it’s quite hard to distinguish between the two as coins and tokens appear the same. However, the two have several differences 

  • Crypto Coins can be mined, but crypto tokens cannot be mined. 
  • Coins are connected to blockchains, on the other hand, tokens are not. 
  • In terms of effectiveness, they differentiate in the area of product or service they authorize the users to purchase. 

Now that we’ve understood the basics of Cryptocurrencies, let’s discuss why people must consider trading in them and what are the features of them?

Cryptocurrencies constitute a new, decentralized paradigm for money. In this system, centralized intermediaries, eg. banks and monetary institutions are not mandatory to impose trust and police transactions between two parties. Though there’s  a high chance that Cryptocurrency investments would have a hand in generating profits. Cryptocurrency markets have reached extremely high value over the past decade, that at one point it managed to outstretch almost $2 trillion.  On the other hand, Bitcoin was evaluated at more than $862 billion as on Dec. 20, 2021 in crypto markets. Where the prediction is to reach $1200 billion by the end of 2022.

 There are plenty of advantages to dealing with cryptocurrencies. 

Here are the top reasons that work in favor of cryptocurrencies:

  • They are a hedge against inflation. Cryptocurrency forms great trading and investment in times of inflation. For instance, investors compare cryptocurrency to gold quite often. One of the particular reasons behind this is that, just like gold, they are in tight supply, as there is a cap on mining any kind of cryptocurrency. 
  • Because third-party intermediaries do not assist them, cryptocurrency transfers between two transacting parties are rapid as compared to standard money transfers. 
  • Flash loans in decentralized finance are an apt instance of such transfers. These types of loans, which are processed without supporting collateral, could be executed within seconds and are used in trading.

As we conclude, The settling economy of cryptocurrencies is testing one of its most important and well-known use cases. In the present time, cryptocurrencies such as Bitcoin distribute as intermediate currencies to streamline money transfers over borders. This method streamlines the money transfer procedure and makes it inexpensive and more valuable. 

As crypto matures, we would be able to achieve a lot of stability which would make it easily interchangeable, and a store of value that will declare it more used by businesses, the government, and everyone as a part of everyday life. Cryptocurrency is still in its early stages and several people are still doubtful about it but it is here to stay and has been modified into our lives and will be a currency used by everyone which is only under the wire. With the acceptance and clarity and how broadly the topic is that needs to be talked about, the future of crypto is most likely to be bright.

Vanshika Verma

Author Vanshika Verma

Consultant Analyst - Publishing

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