Cryptocurrencies have been the rage since last year and you probably have come across it once before landing here. Deemed as the future of money and value, crypto has made parabolic gains this year. Let’s go down the rabbit hole and see what it is. 

What is cryptocurrency?

They are a relatively new type of money that operates differently from the traditional money we use daily. The fundamental difference is that cryptocurrency is a virtual currency, which means there are no physical coins or bills you can carry around.

The way it’s created or issued is also unique. Unlike fiat currencies like INR produced by a central bank, cryptocurrency is produced by using blockchain technology involving volunteers from all over the world. Due to this, cryptocurrency is described as being “decentralized.”

The number of cryptocurrencies is estimated to be over 10,000 by November 2021, with Bitcoin as the most popular. Bitcoin is the world’s first cryptocurrency that people can use to send digital money to each other directly and securely over the internet without intermediaries such as banks.

Mechanism of cryptocurrency

Cryptocurrencies are not controlled or issued by governments. Peer-to-peer networks of computers run free, open-source software to manage them that anyone can join.

You must then be wondering, how can crypto be secure if a bank or government isn’t involved? Well, blockchain technology ensures the security of all these transactions.

Blockchain Technology

A blockchain is a distributed ledger based on code that records transactions permanently. It’s distributed among countless computers around the world. Cryptocurrency transactions are recorded in “blocks,” linked together through a “chain” of past transactions.

Everyone who uses a cryptocurrency has their version of the blockchain to create a unified record of transactions. The blockchain software logs every new transaction as it occurs, keeping all records accurate and identical as each transaction occurs.

Each transaction is validated using two main validation methods: proof of stake or proof of work.

Proof-of-work (PoW):

To add a new block of transactions to the blockchain, validators (also known as miners) must compete by using expensive equipment to generate winning codes. As a reward for adding a new block of transactions to the blockchain, miners receive newly minted cryptocurrencies known as “block rewards.”

Proof-of-stake (PoS):

A less energy-intensive alternative to PoW. Node operators don’t have to invest much in specialized mining equipment here. To be a part of the network, they need to deposit (or lock away) a certain number of coins. The protocol then selects random nodes from the pool of staked funds and assigns them different tasks. In return, successful validators are rewarded with newly minted crypto tokens.

Consensus Mechanism

To verify transactions, both proof of stake and proof of work use consensus mechanisms. While each uses individual users to verify transactions, each verified transaction must be checked and approved by a majority of ledger holders.

Hackers cannot alter the blockchain ledger unless they can get 51% of the ledgers to match their fraudulent version. Such a feat requires a lot of resources.

What is cryptocurrency mining?

Most cryptocurrencies are ‘mined’ via a decentralized network of computers (also called peer-to-peer mining). By continuously verifying the public blockchain ledger and adding new transactions, mining generates more Bitcoin or Ethereum – it is also the mechanism for updating and securing the network.

Anyone with a computer and an internet connection can become a miner. Although mining can be profitable, it is not always the case. In some cases, you may have to spend more on mining than you earn back in cryptocurrency, depending on which cryptocurrency you’re mining, how fast your computer is, and the electricity costs in your area.

Advantages of cryptocurrency

Safety

Bitcoin’s network has never been hacked. Thanks to the fundamental ideas behind cryptocurrencies, they are secure: the systems are permission less, and the software is open source, so countless computer scientists and cryptographers have examined the network’s security from every angle.

Security

Most cryptocurrencies, including Bitcoin, are protected by blockchain technology, continually checked and verified by enormous computing power.

Privacy

Payments with cryptocurrency do not require you to give merchants unnecessary personal information. Your financial information will not be shared with third parties such as banks, payment services, advertisers, and credit rating agencies. Your financial information or identity is unlikely to be compromised or sent over the internet.

Transparency

All transactions of cryptocurrencies are publicly available. Thus, there’s no way to manipulate transactions, change the money supply, or adjust the rules mid-game.

Transferability

Payments with cryptocurrency are as seamless as paying in cash at your local kirana store. Using crypto, it is possible to transfer funds online without using an intermediary like a bank, allowing funds to be transferred globally, near-instantly, 24/7.

Portability

Cryptocurrency is not tied to any financial institution or government, so it’s accessible no matter where you are or what happens to the global financial system’s major intermediaries. 

Irreversibility

Cryptocurrency payments cannot be reversed, unlike credit card payments. Merchants have a much lower risk of being defrauded this way. It could make commerce cheaper for customers by eliminating one of the main reasons credit card companies charge such high processing fees.

Is crypto Legal in India?

That’s the million (or should it be billion)-dollar question. India is being seen as the fastest-growing crypto market in the world. The government’s attitude toward cryptocurrencies has changed over time. 

The RBI restricted cryptocurrency trading in 2018, and the Supreme Court overturned it two years later, promising a new cryptocurrency regulatory law. Furthermore, several talks for recognizing cryptocurrencies as an asset class are also taking place. 

If cryptocurrencies meet the requirements, they will likely be regulated by India’s Securities and Exchange Board. RBI is also considering the introduction of its digital currency.

India does not have legislation that covers cryptocurrencies at present. However, this does not mean that owning cryptocurrencies is illegal. 

This means that crypto owners may not have the same level of protection as other asset classes without a robust legislative framework. If you have a grievance with your bank, you can approach the RBI’s ombudsman. In the crypto space, this may not be possible.  

Crypto regulations in India

During the current Winter Session of Parliament, the government plans to table a reworked cryptocurrency bill that might make cryptocurrency investments taxable.

The government initially planned to ban all private cryptocurrencies; however, it has decided to establish a regulatory framework as part of a new crypto bill introduced in the winter session. 

The crypto bill also proposed creating a digital currency to be issued by the Reserve Bank of India (RBI), to be regulated by the RBI Act. 

Securities and Exchange Board of India (SEBI) may regulate the cryptocurrency exchange platforms that handle cryptocurrencies. There will be a cut-off date for those that hold cryptocurrencies to declare and list them on the SEBI-regulated crypto exchange platforms. 

Since crypto is not considered a legal tender, you cannot have a meal at a restaurant and expect to pay in bitcoin in India. Some commercial establishments accept cryptocurrencies, but such a decision cannot be forced on them.

The majority of crypto holders are therefore focusing on the investment potential of cryptocurrencies, trading them like stocks in the cryptocurrency market. 

Most investors care more about whether the price of a cryptocurrency will rise in the future than whether they can use it to buy goods and services, which is why crypto is increasingly viewed as a method of investment.

How to invest in cryptocurrencies in India

Anyone who follows financial news is probably aware that a lot of investors have made money off cryptocurrency this year. Add cryptocurrencies to your portfolio if you want to get a piece of the action. 

Make sure you research your cryptocurrency options carefully before investing. Don’t assume that the coins that get the most press are the best ones. Avoid peer pressure and be patient. Assess your crypto investment options for the upcoming year.

Many platforms around the world are ready to provide you with access to thousands of cryptocurrencies. Each of them has different utilities. What is important to you is what you look for. Just sign up in a crypto exchange, complete your KYC and buy your first crypto.

Unlike stocks, cryptocurrencies in India can be bought in fractions like 0.00005 of BTC. This allows you to buy crypto for as low as 100 rupees.

Why invest in cryptocurrencies?

The blockchain and cryptocurrencies have emerged as innovative alternatives to traditional banking systems, and they provide powerful advantages over previous payment methods and traditional assets. It has the potential to be the fastest, easiest, cheapest, safest, and most universal way to exchange value ever created. Consider them digital money.

Even though there is no central authority to manipulate cryptocurrencies, they can be used to buy goods or services or held as an investment strategy. They will not be affected by any government.

Cryptocurrencies provide equality of opportunity, regardless of where you live or were born. Any smartphone or internet-connected device gives you access to crypto.

They enable people to expand their economic freedom worldwide in unique ways. Despite the tight government control over citizens’ finances, digital currencies facilitate free trade due to their essential global nature. Cryptocurrencies can provide a viable alternative to dysfunctional fiat currencies where inflation is a significant issue. Residents of many countries are adopting cryptocurrencies to combat inflation.  For example, countries like Venezuela, and Nigeria have seen bitcoin soar in recent years as a hedge against inflation.

There are various ways in which crypto can be incorporated into an investment strategy. One approach is buying and holding bitcoins, the most valuable crypto reaching an all-time high of ~$69K this year. You could also use a more active strategy, such as buying and selling volatility-prone cryptocurrencies.

Best app for crypto trading in India

The preferred way for crypto trading in India is to purchase it on online exchanges like WazirX, Zebpay, Binance, etc. But it is difficult to keep track of multiple investments in different markets at different prices. These apps allow you to check the price of various cryptocurrencies, buy and sell crypto, and manage your account.

How Carret is the best crypto trading App in India

Carret is a multi-crypto exchange platform that provides a complete trading solution with portfolio management to track all your investments in one spot.

The main advantage of Carret is its ability to simultaneously trade on numerous exchanges on the same platform, making the process streamlined and time-saving. You can finally get a complete portfolio analysis amongst all your exchanges and wallets with more power to control multiple trading at once.   

With our all-in-one trading and investment solutions, we empower our clients to navigate the cryptoverse.