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What Is Cryptocurrency & Is Investing In It Safe?

Confused by all the concepts & jargon surrounding cryptocurrencies? Don’t be! Read this blog to find out what cryptocurrencies are all about and understand how they work.
November 22, 2021

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“Cryptocurrencies” or “cryptos” have become all the rage over the past decade. Their popularity has been largely down to the soaring value of popular digital currencies like Bitcoin, Ethereum, Dogecoin, and others. 

The most popular cryptocurrency Bitcoin, for example, has gone from $6,260.91 in November 2019 to $61,309.65 in November 2021, which is an eye-watering rise of more than 800%. 

That said, the world of cryptocurrencies is complex. It is full of diverse concepts, technologies, and cryptos themselves that might be difficult to understand if you’re new to it just like most people. 

However, if you start by understanding the basic jargon it becomes easier and more intriguing. Lucky for you, we’ve simplified everything you need to learn about cryptocurrency with this powerful blog.

Cryptocurrency Definition - What Is Cryptocurrency?

A cryptocurrency is an asset that can be traded on an exchange much like stocks. Naturally, this means that the price of crypto is prone to fluctuations with the potential for earning lucrative returns.

Notice how the word “currency” is a part of a cryptocurrency. That’s because it’s a digital currency that can be used to pay for goods and services on platforms like Shopify that permit such transactions.  

You’ll have to exchange a fiat currency that’s equivalent to the value of the cryptocurrency you want to own. But once you own some form of crypto, you might even be able to trade them for other cryptos.

Cryptocurrencies have also paved the way for a new avenue known by many names like Initial Coin Offering (ICO), Fair Launch Auction (FLA), and others that companies, especially startups, can use to raise money. 

Think of it as an IPO that happens in the world of stocks. Instead of issuing stocks, companies “tokenize” an aspect of their business in the form of a native cryptocurrency like Cube’s Tikka Token. 

If you want to learn about cryptocurrency, it’s crucial to understand how it works. Let’s dig deeper into the underlying technology of cryptocurrencies and common terms that you may have heard of.

Investment Facts

How Does Cryptocurrency Work?

Cryptocurrencies are built on blockchain technology. A blockchain records digital transactions using decentralization and encryption such that the transactions can never be altered. 

Think of it like a ledger that’s set in stone. It can never be copied, only distributed to anyone who wants to verify past transactions. That’s why blockchain is also known as Distributed Ledger Technology (DLT).

Decentralization means that there’s no one entity with all the power. All facts can be independently verified by the public whenever they want to, which is considered to be a direct challenge to traditional systems.  

The blockchain is thus known to reaffirm trust in data security and cryptocurrency security. In fact, this layer of trust is part of what drives the mass appeal of cryptocurrencies. 

Investment facts

What Is Mining In Cryptocurrency?

“Mining” is essential to keep new crypto flowing into circulation. However, let’s take a step back. We’ve spoken about how the blockchain stores transactions in blocks. 

Confirming these transactions is important to maintain the ledger. Doing so is not easy. There are specialists known as “miners” who use sophisticated equipment to confirm blockchain transactions. 

Whoever does so first is awarded a block of new cryptocurrencies. In a nutshell, mining cryptocurrency consists of two broad parts:

  • New cryptocurrencies entered into circulation
  • Blockchain transactions confirmed and verified

Miners get new cryptocurrency tokens for their effort, which is to primarily find a solution to a complex mathematical problem that’s only solvable using state of the art technology. 

Is It Safe To Invest In Cryptocurrency?

Every investment option carries a certain degree of risk. Cryptocurrency is no different. In principle, crypto carries risks that are observable with stocks and other market-linked securities. 

Take for example the volatility of Bitcoin. In July 2021, Bitcoin fell below the coveted $30,000 for the first time in 6 months. However, Bitcoin is trading at $61,309.65 as of November 2021.

Critics point to other drawbacks of crypto like the pump and dump schemes it’s prone to, the unregulated market landscape, and the notion that no cryptocurrency has any real value. 

Thus, the answer to should you invest in cryptocurrency lies in what you want from it. Many investors consider crypto to be speculative, which leaves room for them to earn profits albeit with relatively high risks.  

Others consider crypto to be the definitive asset of the future and want to own a piece of it when it’s affordable. All things considered, crypto does carry useful benefits with above-average risk. 

Future Of Cryptocurrency As Of Now

2021 has been one of the most important years for cryptocurrency. A significantly large number of investors have started to learn about cryptocurrency and trade it on exchanges like Binance. 

Countries like India lead the pack with the highest number of crypto investors in the world at 10.7 crores (~100 million) investors. But the crypto market is still in its nascent stage. 

This brings us to more forward-looking questions, most of which will define where the crypto market and its investors are heading a decade or two down the line. 

These are just some of the things to look out for in the future of crypto:

1. Regulations

Governments across the world are trying to figure out how to regulate cryptocurrency. The reason? There are many according to experts. Crypto is uncharted territory that’s different from traditional securities. 

Furthermore, many believe that the grey areas in crypto can be exploited by wrongdoers. In light of these concerns, there have been attempts to exercise unclear laws and blanket bans on cryptocurrency. 

Circa 2018 India when the RBI prohibited banks from engaging in crypto-based transactions. It didn’t last long as the Supreme Court of India overturned the ban in 2020. 

That’s why the crypto community, including investors and experts, have voiced their concerns on unclear laws while being open to clearly defined regulations that are passed to protect rather than to spite.  

Furthermore, clearly defined regulations would add to the legitimacy of cryptocurrency. This feat looks like it’s still quite a few years away as a lot must be cleared up first at the micro level and then the macro level. 

2. New Investment Options

Human history has been defined by creating a lot out of a few. First, there was fiat currency then there were FDs, stocks, mutual funds, P2P lending, and others.

Similarly, the introduction of crypto has led to several new wealth creation options like crypto ETFs, crypto mutual funds, and even crypto FDs along with blockbuster concepts like Defi, NFTs, and others. 

In fact, ProShares Bitcoin Strategy ETF recently became one of the first Bitcoin-related ETFs in the world while the Cryptopunk NFT series is fetching traders millions of dollars. 

3. Wider Crypto Adoption

The adoption of cryptocurrency on a wider scale does eventually hinge on clear regulations. But there have been promising signs of adoption in popular domains like:

  • Basketball: Dallas Mavs allowed fans to purchase game tickets and merchandise using Dogecoin (ticker: DOGE) from March 2021
  • Winery: Acker, the oldest wine shop in the US, started accepting cryptocurrency in April 2021
  • Cafe: Starbucks began accepting Bitcoin back in 2020

Considering the star power of some of the brands that have adopted Bitcoin and other altcoins, the world now awaits to see which brands will follow suit in the years to come.  

4. Multiple Use Cases

We briefly discussed how cryptocurrency is somewhat similar to stocks in that it can be bought and sold on an exchange. Unlike stocks, however, cryptocurrencies have multiple use cases. 

Companies can tokenize their revenue in the form of equity tokens or offer services that can be redeemed using utility tokens like Cube’s Tikka Token. That’s not all. 

Cryptocurrencies can become the de facto mode of payment for goods, services, and even salaries while it has created new wealth creation avenues in the form of mining and staking. 

5. New Possibilities

Unlike IPOs, the functionality that cryptos offer through an ICO or FLA is endless. Startups can use it to raise more money. The affluent class of investors can become angel investors or venture capitalists.  

Other possibilities include (but are not limited to):

  • Diverse NFTs
  • Game coins
  • Stable coins
  • Reward coins
  • Blockchain music
  • Lightning-fast transactions

Or, certain tokens can remain purely speculative. While the possibilities are interesting, investors must be cautious of one important fact: nobody really knows much about crypto, even if they’re “experts”.

Investment tips

Top Cryptocurrencies Of 2021

Name

Ticker

Market Cap

Bitcoin

BTC

$1,115,193,207,631

Ethereum

ETH

$491,072,533,176

Binance Coin

BNB

$97,490,749,974

Tether

USDT

$73,828,275,516

Solana

SOL

$65,379,742,889

Cardano

ADA

$61,061,654,456

XRP

XRP

$49,692,242,065

Polkadot

DOT

$38,244,282,146

USD Coin

USDC

$34,436,112,791

Dogecoin

DOGE

$30,205,841,351

Note: Facts & figures are true as of 16-11-2021. None of the information shared here is to be construed as investment advice. Exercise caution when investing in unregulated assets like cryptocurrency. 

Shriram Shekhar
Shriram is a Content Marketer at Cube Wealth, the Financial Freedom App with a smart Perfect Portfolio Planner. He has developed cutting edge IT products for over 2 years before turning to his passion for the written word. Shriram’s love for philosophy, product development, and empowering people through quality content is what got him to Cube Wealth.

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