If you talk about cryptocurrencies, 2021 has been an unprecedented year. And by that, we mean the retail and institutional investors pouring tons of money into the new and hot and the old existing cryptos alike. And all these dollars caused a massive spike in the cryptocurrency market by a whopping 185 per cent, from $773 billion to $2.2 trillion.
Sounds lucrative, right?
But the virtual currency can be a little daunting for quite a few reasons. For starters, take the massive amount of jargon around it. As it is daunting, the world of crypto can be exciting for you and open many financial doors, provided you know the basics. And we’re here for that reason only.
If you are someone looking to get yourself a slice of the crypto pie, but don’t know where to start, this one’s for you! We are here to guide and gently introduce you to some of the important jargon and key concepts that you’ll probably need to kick-start your journey into the world of blockchain technology.
Let’s enter the crypto universe without further ado and get ready to be the next Richie Rich, maybe.
Key Takeaways
- Cryptocurrency is a type of digital currency in which transactions are verified and records are maintained by a decentralized system by employing cryptography techniques.
- Cryptocurrencies have several advantages, including cheaper and faster money transfers and decentralized systems that do not have a single point of failure.
- The price volatility of cryptocurrencies, as well as the significant energy consumption of mining activities and their application in criminal activities, are some negatives.
Future Value Explained: Cryptocurrency Definition
A cryptocurrency is just like a digital form of your beloved cash. You can use it to split a fancy bar tab with friends, buy that new pair of Jordans (yes, those cool shoes) you’ve been eyeing, or book flights and hotels for your next relaxing getaway. Cryptocurrency can be sent to friends and relatives worldwide because it’s digital.
This means cryptocurrency is the same as PayPal or bank transfers, right?
No, not at all. It’s a lot more exciting! Let us make you understand cryptocurrency meaning as simply as we possibly can.
When you employ the traditional internet payment gateways, your currency/money is held by businesses. They hold your money for you, and you must ask them to transfer it on your behalf when you wish to use it.
But, there is no such thing as a cryptocurrency organization. You, your friends, and thousands of others can function as your own banks by using free software. Your computer establishes connections with other computers, allowing you to communicate without the use of a third party.
We’ve explained to you the cryptocurrency meaning, but what if you have a crypto discussion sometime and you’d want to steal the limelight with all your crypto knowledge. If you are one such person, we are here to help you by telling you the cryptocurrency definition.
The term cryptocurrency is derived from the amalgamation of 2 words cryptography and currency. You employ advanced math to secure your funds with cryptography, making it nearly impossible to counterfeit or double-spend and ensuring that no one else can spend them.
If you’re getting scared because we used the term advanced math, let us tell you that there’s no need to know all of this. The applications you utilize for cryptocurrency trading, investing or storing will do all the heavy lifting for you. You won’t even realize the complex things going on underneath the hood.
So, this magical internet money isn’t held by anyone and is protected by cryptography. But why on earth should you care if you already have apps for paying online?
It’s because cryptocurrency is permissionless, censorship-resistant and a cheap and fast payment method!
Types of Cryptocurrencies
There are dozens of different types of cryptocurrencies today. While each is designed to give a unique feature or function, the majority are based on the same concepts as Bitcoin (the king of crypto).
Estimates of the many types of cryptocurrencies you can trade range from roughly 6,000 coins to over 10,000 coins as of September 2021 and more yet to be added to the crypto roaster. All these coins stand with a total market valuation of almost $2 trillion.
As a rule of thumb, different types of cryptocurrencies fall under one of the two subcategories, mainly a ‘coin’ and a ‘token’.
Ah! Too much technobabble? Let us simplify things for you.
Coin | Token |
Built into a blockchain (inherent to its own blockchain tech.) | Built on top of an existing blockchain |
Requires substantial resources and skills for creation | Comparatively easier to create |
Mostly distributed through the process of mining | Mostly distributed through ICOs (Initial Coin Offerings) |
Used to store or transfer money | Valid with one merchant |
Valid at any merchant who uses the specific currency | Various uses (e.g.- security, asset representation) |
Examples of coins include Bitcoin and Litecoin | Ether is an example of a token |
Blockchain and Crypto – How is it Related?
You probably might have read the word blockchain up there, if you were diligently paying attention when we were telling you the cryptocurrency meaning and cryptocurrency definition. So, didn’t you wonder what scary thing a blockchain is? If yes, this section is here to clear the air!
A blockchain is a decentralized, open ledger in which transactions are recorded in code. In practice, it’s like a cheque book that’s spread across thousands of computers globally. Transactions are saved in ‘blocks,’ which are then linked together in a ‘chain’ with previous cryptocurrency transactions.
On a blockchain, everyone who uses a cryptocurrency has their own copy of this book, which creates a unified transaction record. Each new transaction is automatically registered by software, and every copy of the blockchain is updated with the new data at the same moment, guaranteeing that all records are similar and valid.
Each transaction in a blockchain is validated using one of two basic validation mechanisms to prevent fraud: proof of work or proof of stake.
Did You Know?
El Salvador became the first ever country to accept Bitcoin as legal tender alongside the US Dollar in 2021.
Unlocking the Virtual Economy: Cryptocurrency Terms You Should be Aware of
Genesis Block. HODL. DApps.
These aren’t words from an alien language that was recently discovered. They’re one of the many new and important terms in the cryptocurrency lingo that you as an investor should be aware about.
Even for seasoned traditional investors, mastering the basics takes time due to unfamiliar jargon, evolving technologies, and keeping up with memes and tweets.
Before you begin, as with any investment, it’s critical to know exactly what you’re getting into. This is especially true for a speculative and continually evolving asset like cryptocurrency. And we are here to help! Here are some terms that’ll help you along your crypto journey.
- Address
A cryptocurrency address is a string of characters that can be used to receive, store, or send cryptocurrency. Every crypto address is unique, just like a phone number or zip code.
- DApps
The term ‘decentralized app’ refers to any practical blockchain and/or cryptocurrency application. Mobile games, communications systems, and social media sites are all examples of DApps.
- Fork
When a cryptocurrency or blockchain-based network separates into two separate projects, each with its own code and set of governing rules, it is known as a fork. Only one blockchain will remain operational in the event of a ‘soft’ fork, but ‘hard’ forks result in two new brand chains.
- HODL
HODL is a slang term, not a typo. An early Internet enthusiast’s finger slipped, and he typed HODL on an Internet chat room, instead of HOLD imploring his fellow investors not to sell, according to Internet mythology. When Bitcoin prices fall, devoted investors encourage one another to HODL and not sell their tokens. HODLs premise is that Bitcoin’s price will continue to grow despite significant drops. The term expresses trust and belief in Bitcoin’s rise.
- Pump and Dump
Pump and dump is a type of price manipulation in which the price of a cryptocurrency is inflated by fraudulent recommendations (pump) before being sold at a higher price (dump).
Cryptocurrency: Why Should You Care?
There’s no denying that digital currencies have exploded in popularity. The crypto world has only continued to flourish, fueled by the phenomenal growth of Bitcoin (BTC) and Ether (ETH).
Source- Coinbase
And now that you already are aware of cryptocurrency meaning and fancy becoming the next crypto millionaire, here are some advantages that you should know about.
Source – Coinbase
Easy Transactions |
Incredible Security |
Short Settlement Times and Low Fees |
Exponential Industry Growth |
Outsized Returns |
More Private Transactions |
Portfolio Diversification |
Inflation Hedge |
Cross-Border Payments |
A More Inclusive Financial System |
Transactional Freedom |
24/7 Markets |
With all the advantages cryptocurrencies provide over fiat currency and other asset classes, it’s difficult to claim that crypto has no value. Several people who appreciate rapid and safe transactions value the utility provided by many cryptocurrencies. With fewer technical barriers, it will only become more accessible over time. The advantages of adding crypto or crypto to your portfolio start to mount up when you consider the benefits of diversification and the possibility to hedge against inflation.
Who Should Invest in Cryptocurrency?
Experts are divided on whether it is a good idea to invest in cryptocurrency. Some financial gurus advise against investing in crypto because of its highly speculative nature and with the potential for random large price swings.
And when it comes to deciding how much to invest, you as an investor should ask yourself how much of your portfolio you’re ready to lose if the investment goes south. It all depends on how much you have today and what’s actually on the line for you in terms of loss.
While there are many reasons to be cautious of digital currencies, many traditional investors have been persuaded to invest in them. The blockchain sector is sometimes referred to as a revolutionary industry, with the potential to disrupt the status quo in the same manner that the internet did in the 1990s.
Supporters of digital currencies, on the other hand, should be cautious about investing in crypto. They should spend time learning about the most typical pitfalls that newbie investors face. In addition they should master the sophisticated security standards and thoroughly investigate their new investments before they put their money where their mouth is.
Investing in cryptocurrencies and Initial Coin Offerings (ICOs) is extremely dangerous and speculative. But each person’s circumstance is different, so you should always get advice from a knowledgeable specialist before making any financial decisions.
Word to Remember
Portfolio Diversification
Investing in a variety of crypto projects to diversify your crypto portfolio reduces risk if one or more projects perform poorly. Diversification is a process that also allows you to get the best potential returns even if some of your portfolio’s components perform poorly.
Popular Cryptocurrencies in India
The cryptocurrency business in India has had an interesting year in 2021. Bitcoin set fresh highs, propelling the crypto market to new heights. According to reports, cryptocurrency adoption has exploded in India. Even tier-2 and tier-3 cities have shown a greater willingness to embrace the digital currency. And this expansion is taking place even though the government has yet to enact any regulatory measures.
Therefore, it is safe to assume that the concept of cryptocurrency has captivated the Indian investors. And now that you know the cryptocurrency meaning and are ready to invest/trade, we’ve compiled a list of the most popular cryptocurrencies in India that are loved by all.
Source- Coinbase
Bitcoin |
Dogecoin |
Shiba Inu |
Ethereum |
Tether |
Cardano |
Binance Coin |
Tron |
Polygon |
Solana |
Conclusion
So, here you have it! Now that you know cryptocurrency meaning and its basics, make smart crypto investments and derive the best value for your money. Now, what are you waiting for?
FAQs
Though the crypto space is a highly volatile one, here are 4 tips from our side to help you invest safely.
Research exchanges
Know the process and basics to store your digital currency
Diversify your investments
Prepare for volatility
Because there are so many cryptocurrencies out there right now, there is no central platform that allows you to access all of them. Coinbase Global is one of the largest trading platforms, with over 100 cryptocurrencies now supported (including most of the top 10 largest cryptos by market cap).
The blockchain, from a technological standpoint, uses consensus techniques, and transactions are logged on several nodes rather than on a single server. A node is a machine that connects to the blockchain network and downloads a copy of the blockchain automatically when it joins the network. All nodes must agree for a transaction to be legitimate.
Some disadvantages of crypto include:
Illegal transactions
Risk of data loss
Power lies in few hands
Buying NFTs with other tokens
No refund or cancellation
High consumption of energy
Vulnerable to hacks
The Securities and Exchange Commission (SEC) has stated that Bitcoin and Ethereum, the two most valuable cryptocurrencies by market capitalization