Cryptocurrency, or virtual currency as we know it, is decentralized digital money that is solely based on blockchain technology. Now, you may have possibly heard of Bitcoin, Dogecoin and Ethereum but there are more than 17,000 different types of cryptocurrencies that are being circulated around the world.
What differentiates cryptocurrencies from your usual fiat currency is the fact that the former is not issued by any centralized system. Instead, they are rather generated by mining. For example, Bitcoin is generated by bitcoin mining, which is basically a process that is performed using specialized hardware that solves an extremely complex computational math problem.
Although crypto mining is costly and time-consuming, it is extremely rewarding. When someone invests in a cryptocurrency, the details are registered on a distributed ledger which is called the blockchain. This process, however, is only approved when a miner verifies the transaction as licit.
In simple terms, crypto mining prevents the currency from being double-spent on a distributing network. It’s a necessary screening layer in the crypto universe that helps record, secure and validate all transactions on the concerned network.
How does cryptocurrency mining work?
Mining a cryptocurrency requires a specialized computer that is designed to solve complex cryptographic mathematical equations. Earlier when Bitcoin was launched, its mining was done on regular home computers.
Cryptocurrencies massive boom in the recent years though meant that this wasn’t possible on regular home computers anymore, which is why they had to be replaced by specialized GPU or what is termed as an application-specific integrated circuit (ASIC) miner to cater to the computational power required to maintain the new-age blockchain.
These specialized computers perform the calculations that are required to verify the records of every crypto transaction. This also allows the blockchain to stay secured. Bear in mind that verifying these blockchain transactions require a high level of computing power. As a result, something like amateur miners does not exist since mining is mostly done by specialized companies or groups of people rather than individuals.
To mine a cryptocurrency, each computer operates to decode a 64-digit hexadecimal number which is known as a “hash”. The faster the computer, the bigger the chance for the miner to earn a reward. As a reward, the miner updates the blockchain ledger with all the new transactions and is given a predetermined amount of new virtual currency.
What are the advantages and disadvantages of cryptocurrency?
The objective of any cryptocurrency is to give power and responsibility to the holder. Unlike fiat currencies which are regulated by government bodies, the value of cryptocurrencies is determined by what someone is willing to trade for it. Nobody really owns or regulates cryptocurrencies and its value certainly doesn’t change due to a country’s political climate. That said, there’s no denying that cryptocurrencies do come with some pros and cons.
Advantages of cryptocurrencies
- Fund transfer is faster and easier since there are no intermediaries like banks. These decentralized transfers are protected by a blockchain ledger which makes every transaction quite transparent.
- Since the value of cryptocurrencies is not fixed, they have become a mode of profit for investors. By December 20, 2021, Bitcoin was valued at more than $862 billion in crypto markets. This value once even reached almost $2 trillion.
- Cryptocurrencies have made cross-border payments extremely easy. An individual can send crypto coins to someone in a different country without any transfer or transaction fee.
- With the ledger being open and used on blockchain technology, the data is entirely transparent which means it is open for the general public to see.
Disadvantages of cryptocurrencies
- Unfortunately, the secured nature of crypto and lack of government regulation has now become a mode of money laundering for criminals. Although it’s indeed a risky mode of transfer, anonymity helps those who are involved. That said, the good thing is that the volume of such crimes is extremely low.
- Price volatility is another disadvantage of trading in crypto. While swift profits are a big draw for many interested investors, there's also potential for fast and drastic falls in the valuation of the currency. Bitcoin's 50% price drop in just two months from April to June 2021 is one such example.
- Another disadvantage of cryptocurrency is government regulation. Despite being operated through a blockchain ledger, without a government sanction, there will always be a risk in investing in these technologies.
- Cryptocurrency transactions are also extremely vulnerable to cyber-attacks and since there is no centralized protection mechanism, one might bear a big loss in investment. Anyone who has the private key to a public ledger on the Bitcoin blockchain can authorize transactions.
- Even though cryptocurrencies are growing in popularity, it is still not accepted globally which in a way puts a limit on where exactly one can use this digital asset.
How to buy cryptocurrencies?
Now, while mining is one way to get cryptocurrencies, the usual and most popular way to buy cryptocurrency is through a crypto trading service. Some of the ways of buying cryptocurrency include cryptocurrency exchanges, payment services, and brokerages. Among these, cryptocurrency exchanges remain the most convenient way for a buyer.
Once you sign up on a crypto exchange platform, you will be able to buy, sell or hold cryptocurrency. These platforms offer wallet storage and may charge asset-based fees. Most of these platforms allow users to buy crypto using fiat currencies. In case you are wondering, WazirX is one of the biggest and most trusted crypto exchange platforms in India since its operations are handled by a registered company.
For someone to buy cryptocurrency through an exchange, the following steps are required:
- Get a crypto wallet
- Choose an exchange platform
- Register and complete security checks
- Add payment methods
- Deposit funds to your exchange account
- Buy crypto
Cryptocurrency and sports betting - a new age of gambling
The sports betting sector has witnessed massive growth in recent years with regards to the usage of cryptocurrencies. With digital currency now gaining momentum, many top sports betting websites as well as online casinos have started adopting the virtual currency model for transactions.
Most sportsbooks are now putting greater emphasis on crypto deposits as these virtual currencies do not have a third-party regulatory fee. For example, transactions done through e-wallets or standard credit cards can cost a user some kind of processing fee if he/she has approved the payment from outside government jurisdiction.
Furthermore, it is even easier and faster for sportsbook makers to keep the records autonomous and issue the deposits/withdrawal within seconds.
Before making any kind of deposit though, it is important for the users to note which kind of cryptocurrencies the platform accepts. Usually, the likes of Bitcoin, Ethereum, Tether and Bitcoin Cash are the widely accepted currencies.
As noted, crypto betting sites do not undergo traditional payment procedures, hence the withdrawal amount remains intact, making it a win-win situation of sorts for all parties involved.
On a large scale, crypto betting has only one notable dissimilarity from traditional betting, which is the type of transaction. For those preferring crypto betting, it is imperative to note that one has to visit a crypto exchange platform in order to deposit the currency in your betting account.
Similarly, users can eventually withdraw their winnings by converting their cryptocurrency into their chosen fiat currency based on the value of that particular crypto.
1. Is cryptocurrency safe?
Since cryptocurrencies are based on blockchain technology, it is difficult for hackers to tamper with the ledger, thus making these digital assets quite safe.
2. How to store cryptocurrency?
There are mainly two ways to store cryptocurrencies. First is Hot Wallet Storage which refers to an online software that has private keys. The second is Cold Wallet Storage, which are essentially offline electronic devices.
3. How many cryptocurrencies are there in the world?
According to CoinMarketCap, there are nearly 17,000 different types of cryptocurrencies that are being operated around the world. The most popular among all is Bitcoin, Ether and XRP.
4. Is cryptocurrency legal?
While many countries have opened their doors for cryptocurrency, India seems to be divided at the moment. As things stand, crypto is not recognised in India yet. It’s important to note that there is no ban on the use of it either.
5. What can I buy with cryptocurrency?
While many industries are still a long way off from accepting these virtual currencies, some have already started accepting them. This means one can buy cars, insurance and some athletes have been paid using digital currency recently.
Author: Swapnil Bhopatkar
Featured photo: Unsplash / Quantitatives.io