Cryptocurrency (or crypto in short) was the talk of the town when bitcoin blew up in 2017 from $ 2000 to $ 20000 in a span of 6 months. Since then, bitcoin and several other cryptocurrencies have gained acceptance in financial markets all over the world. 

A cryptocurrency, crypto-currency, or crypto is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. It typically does not exist in physical form (like paper money) and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems. 

In layman’s terms, cryptocurrency is a digital, intangible currency that has been introduced to act as a medium of exchange. It is issued via cryptography meaning it is impossible to counterfeit. Crypto refers to the multitude of encryption algorithms that ensure the integrity and security of cryptocurrency via elliptical curve encryption, public-private key pairs, and hashing functions. 

Cryptocurrency is decentralised, meaning no bank or financial institution owns it, instead, a public financial record of all cryptocurrency activities is kept in the form of a ledger in the blockchain. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, Dogecoin, Cardano etc. 

So what exactly is a blockchain then? 

Simply put, a blockchain is like a database that stores information, but instead of data being fed in the form of a table, in a blockchain, data is entered in the form of blocks into the already existing chain of blocks, hence the name blockchain. New blocks are stored in a linear and chronological fashion and are added to the end. 

Blockchains provide a mechanism to decentralise cryptocurrency and at the same time ensure that data once entered into the blockchain is impossible to edit. 

But in the digital age with sophisticated supercomputers, anything can be hacked right? 

Technically yes, it is possible for a hacker to steal cryptocurrency but this feat would be next to impossible.

Here’s how, take the example of Bitcoin which is the world’s most popular currency and as of November 2020 has over 656,197 blocks in its chain. 

If a hacker alters the blockchain to steal Bitcoin, this change would reflect in the copy of the blockchain that they possess, however, the copy of the ledger that every other user has would differ, and it would no longer align with the hacker’s copy. When everyone cross-references their copy, such an anomaly would be detected easily and the hacker's altered copy would be illegitimized. 

To pull off this hack the hacker would have to alter 51% of the copies of the blockchain so that their copy becomes the majority copy, however, doing so would be a gargantuan task as they would have to alter the timestamps and hashmaps of all the blocks which can only be achieved by redoing the entire task of populating the blockchain. Such a task would require an enormous amount of time and resources and even then if such a heist is pulled off, it would send alarm signals to the network members of the blockchain and they will put an end to it. 

Hacking the blockchain would also ultimately bring down the cost of the cryptocurrency as people would lose trust which would reduce demand and eventually cause the cryptocurrencies’ price to plummet. 

This is what makes blockchains so secure, and as a result, the term cryptocurrency is synonymous with it. However, it is important to note that blockchains can exist outside the spectrum of cryptocurrencies, as a means of sequentially storing data. 

How can I get my hands on some crypto? 

There are a plethora of trading sites like Coinbase and Gemini where cryptocurrencies are traded, the process is similar to stock trading however crypto is much more volatile. 

The process usually follows these steps: 

1. Open a brokerage account at a firm that allows crypto investments 

2. Deposit funds from your bank into the brokerage account. 

3. Buy crypto using deposited funds. 

4. Later sell the crypto for a gain or loss.

However there is another way to earn cryptocurrency, that is by ‘mining it’. Preposterous right? What does mining have to do with crypto? It turns out this mining doesn't have anything to do with shovels and diggers. Instead, cryptocurrency mining requires you to verify transactions that are added to the blockchain. 

Miners earn cryptocurrency in exchange for this task. The rate of generating hashes, which validate any transaction, has been increased by the use of specialized machines such as FPGAs and ASICs running complex hashing algorithms like SHA-256 and scrypt. Mining utilises huge amounts of electricity, As of July 2019, bitcoin's electricity consumption is estimated to be about 7 gigawatts, 0.2% of the global total, or equivalent to that of Switzerland. 

Automobile giant, Tesla had started accepting bitcoin on its website, however, founder Elon Musk decided to repeal the decision after considering the environmental degradation that bitcoin mining causes. 

Volatility and The Future 

Billionaire Warren Buffet of Berkshire Hathaway fame, one of the most successful investors of all time, urged traders to stay away from Bitcoin, calling it a ‘mirage’. 

JPMorganChase CEO Jamie Dimon called bitcoin a ‘fraud’ that would eventually blow up. 

There is a lot of nervous scepticism amongst veteran traders and investors when it comes to Cryptocurrency trading. This can perhaps be accredited to the inherent volatility of Bitcoin and cryptocurrencies in general. 

Whilst it is tough to pinpoint the exact reason for Bitcoin’s meteoric rise in 2017, as per Valentin Marinov, the head of G-10 FX research at Credit Agricole CIB, “it boils down to the inherent imbalance between demand and supply. Supply is inherently fixed; it’s very much like gold if you wish? At the same time … demand is based on hopes that its value will continue to grow.” 

When the rise is meteoric so is the downfall, to the extreme volatility that cryptocurrencies possess, the slightest of imbalance can cause it to implode. When Elon Musk repealed his decision to allow bitcoin to purchase Tesla vehicles, the total cryptocurrency market cap plummeted from $2.43 trillion to $2.06 trillion in 3 hours, Bitcoin itself dropped 7%. 

The future of cryptocurrency is promising, from the inception of bitcoin in 2009, cryptocurrencies have reached 2 trillion dollars in market cap cumulatively, several institutions have also started accepting cryptocurrency for making purchases and several banks are also pondering the introduction of crypto alongside other tangible currencies. 

However there are several caveats associated with this, countless examples and experiences over the years have shown that when it comes to trading crypto one has to exercise extreme caution and tread lightly because one wrong move can lead to catastrophic losses.

India’s perplexing stance: 

The Indian government has a very convoluted and perplexing stance on the entire cryptocurrency market. Legally speaking, cryptocurrencies aren't banned in India per se, that is a person could buy and sell crypto in India, they are also taxable however there is no legal framework around it. Recently The Ministry of Corporate Affairs (MCA) made it mandatory for companies to disclose crypto trading/investments during the financial year. Experts view this as a step in the positive direction for cryptocurrencies and the Finance Minister Nirmala Sitharaman has also said that the centre has an open mind when it comes to experimenting with new technologies. 

Having said that, the government did signal that they wished to impose a blanket ban on all cryptocurrencies however that stance seems to have changed. An Inter-Ministerial-Committee was also established in 2017 to study cryptocurrencies and their viability in the Indian landscape and their report has been encouraging, it flagged the positive aspect of distributed-ledger technology and suggested various applications, especially in financial services, for its use in India, including banks and other financial firms. 

With an estimated 7 million Indians having invested 1billion dollars into cryptocurrencies, the future looks promising, however, there is still a long road ahead to widespread cryptocurrency adoption in India. 


https://www.cnbc.com/2017/12/11/bitcoin-heres-the-reason-behind-its-soaring-value-credit-agric ole-says.html 




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Submitted by Devansh Joshi