The buzz around cryptocurrencies has been around for some time now. You might know about the great returns that people have made through crypto. Such news might have gotten you excited as well. But before you decide to foray into this world and check out cryptocurrency prices, it is vital to learn more about this form of currency.
What is cryptocurrency?
Cryptocurrency, or “crypto,” is a digital currency used for the online sale and purchase of goods. It is based on the now well-known blockchain technology, which is secure to use. This currency is not used as a physical coin or note but is held in a digital wallet by the owner.
As crypto uses blockchain technology, it is very difficult to counterfeit. It is beyond the control of governments or central banks. Hence, only the users of a specific crypto can use and maintain it. No single entity can own or control cryptocurrencies due to their decentralised nature.
The first crypto was launched in 2009 and is still the most famous. Do you know its name? Yes, it is the famous Bitcoin, and now there are over 21,000 cryptocurrencies available.
How to create cryptocurrencies?
One of the best-known ways to create cryptos is through the mining process. Many cryptos, including Bitcoin, use this process. The mining process required a lot of power for the system to solve complex puzzles. This process is vital to verifying the validity of network transactions. You will get a newly created cryptocurrency as a reward for using the computer.
Other cryptos employ varied ways to create and distribute tokens that do not need so much power. They also have a lower effect on the environment. If you cannot complete the mining process, the best way to go ahead is to buy cryptos online or exchange them with any other user.
How to use cryptocurrencies?
The main reason that cryptos were created was to sell and buy goods and services online. But not many platforms accept it as a valid currency. As a result, there are only a few applications for cryptocurrencies. While rapid progress is being made, you are still very far from being able to enter a shop and use crypto to pay for groceries.
Though cryptos have great potential for the future, many people use them as investments. This is much like investing in mutual funds and hoping for profits. Likewise, people are investing in cryptocurrencies to make their money grow in the future.
Every crypto unit is known as a coin or token based on how it will be used. Apart from being used for the purchase and sale of goods, cryptos are now also used for some financial products or games.
But cryptos are very volatile, and there is a lot of risk in investing if you do not know all the details about the market. So, you must first know all about crypto and only then start to invest; otherwise, there is a chance that you can lose the money.
What determines cryptocurrency prices?
Cryptos are not issued by any central bank and have no backing from the government. As a result, factors that affect currency prices will not affect cryptocurrency prices. Inflation, monetary policy, and the economy do not impact cryptos. As they are a store of value, cryptocurrency prices are affected by the following:
- Demand and supply in the market.
- Government regulations.
- Latest news reports.
- Production costs for mining.
- The number of competitors.
Risks of investing in cryptocurrencies
There are many risks in investing in cryptos as compared to other options. The reason behind this risk is that there are so many unknowns. As cryptocurrencies have no physical presence, their offline usage is still impossible.
Some of the risks that you can face when you decide to invest in cryptos are:
- No history: Cryptos have only been around for the last few years. As such, there is no way for you to decide its value in the long term. The demand and supply cycles can vary in the long run, so cryptocurrency prices will remain volatile.
- Lose money: Cryptos are not yet managed by central banks. Therefore, there are a lot of risks involved in its trade. You can lose your money to the creators if they make false claims. There is no way to reclaim your money because the government does not regulate the transaction.
- Lack of information: When you decide to invest in cryptos, you have to rely on data shared by the exchanges or the providers. They might hold back some data or not inform you about the risks you may face. Making any investment in non-verified information is not wise.
- Legality: There is still no clear answer about the legal status of cryptocurrencies in India. The government might ban crypto, and then you can lose your money. It is better to get an expert opinion before you invest in cryptos.
- Theft: There have been some instances where cryptos have been stolen from the owners’ wallets. So, you stand to lose your money if you are not careful when you handle cryptos. Having all your security systems in place is vital to saving yourself from such issues.
You must know all the details about cryptocurrencies before you invest in them. In India, crypto is still a new topic, and many events are taking place around it. It is, therefore, vital that you get complete details on various cryptos before deciding. You must visit Piramal Finance to acquire more details about cryptos. They have a blog section where you can get all crypto-related details. This will help you make wise choices when you are ready to invest in cryptos and want to avoid any risks.