Nowadays, cryptocurrency, blockchain, and bitcoin are in the news every day due to one or another reason.
Recently, Prime Minister of India Narendra Modi has urged all democratic nations to protect cryptocurrency from falling into the wrong hands.
Many companies have started exchange services to purchase and sell cryptocurrencies in our country, though no regulatory body has been formed so far. The Government has constituted a Parliamentary Committee under the Chairmanship of Shri Jayant Sinha, former Minister of State, to submit its report in the Winter Session of Parliament discussing the pros and cons of cryptocurrency.
There are two types of cryptocurrencies; the first one is the coin that is a correct application of cryptocurrency on the principle of blockchain. Thus, people can easily invest and exchange through coins. Some noteworthy examples of the coin are Bitcoin, Ethereum, Ripple.
The second type is known as tokens, which can work above the infrastructure of any cryptocurrency. Tokens are used as smart contracts for most physical goods and services. Sometimes tokens are also used for the collection of funds for various projects and startups.
“The middle-income group of our country does not miss any investment opportunity, so the number of investors in cryptocurrencies is steadily increasing.”
However, most people don’t know much about the principles of cryptocurrency and blockchain. Cryptocurrency follows the principle of blockchain. Public computers, the internet, databases, follow centralized principles, but blockchain works on the principle of decentralization.
Blockchain is a distributed ledger technology that promotes decentralized processes protected from the esoteric by fostering transparency and privacy.
Blockchain works based on three essential components. The first and most crucial component is private and public keys; you can verify your transactions from the private key, while ordinary people can get information about that transaction from the public key.
The second component is distributed networks, under which groups of computers, also known as nodes, connect to different places in the world to form a system. These nodes are also used for mining, and a person involved in mining is known as a miner. Any node can easily verify transactions and other related information from anywhere in the world.
As a distributed ledger technology, the details of transactions made by all the nodes can be seen in a single ledger. The distributed ledger can be in the form of permitted or unpermitted as per the requirement. That is why a variety of ledgers are made to be used as per the requirement.
The third essential component is consensus. The consensus model is used to make democratic decisions between all the nodes in the network. Various procedures are also available to implement consensus, such as proof of work, proof of sharing, proof of authority, etc.
The blockchain is made up of private or standard electronic ledgers under the Peer-to-Peer system. This ledger is sent to various consumers to link transaction cases to the instances by making them irreversible with the seal of time.
As soon as a group of transactions is completed, a block is created from the available data. Thus, blocks are formed into a chain known as the blockchain. It is also necessary to talk about the value decision and change of pricing of cryptocurrency. The interaction of demand and supply also determines the value of cryptocurrencies like other commodities and share markets.
Mining is an essential process in cryptocurrencies. The mining process uses potent computer hardware and tensile software. As soon as a new transaction takes place in the cryptocurrency, all the miners become active and compete to decrypt the block and know the transaction process.
Solving the block provides all transaction information. As soon as the block is decrypted and most mining nodes are accepted, the block is considered authentic.
The verification process requires computer power, which is also awfully expensive. That is why individual miners use computer power by working in groups. As a result, the miner gets a fraction of the cryptocurrency for their services.
There are many important reasons for the ever-increasing popularity of cryptocurrencies. It protects us from inflation, and it is straightforward to handle and use; this makes the transaction process largely economical, making exchange easier in different currencies.
Furthermore, cryptocurrency is safe and secure, as it works in a decentralized manner. The steep rise in bitcoin’s value over the past few years makes cryptocurrencies a lucrative investment option.
However, the chances of damage to cryptocurrencies are no less. Such as illegal transactions, financing of terrorism, wild fluctuations in prices, news of cryptocurrency being hacked, the possibility of personal information going into the hands of others. If a miner succeeds in controlling more than 50% of the nodes, he can authenticate any transaction. Select people control cryptocurrencies, and people can also misuse investors’ money. Some companies like Squid Cryptocurrency have also disappeared after getting investments from people.
Currently, the total valuation of the cryptocurrency market is more than 2 trillion. A total of more than 9450 cryptocurrencies are available in the market. Bitcoin alone holds a 48% share of the entire cryptocurrency market.
Although El Salvador is the first country to declare Bitcoin a legitimate currency in September 2021, bitcoin is being used for transactions in most developed countries. Bitcoin’s first transaction was to buy pizza in May 2010; after 11 years, an average of 2.65 lakh transactions occur daily through Bitcoin.
Similarly, Ethereum has also emerged as a significant cryptocurrency. Ethereum is a crowdfunded project which is also available as an open-source platform. Ethereum is a more flexible cryptocurrency than Bitcoin, as Bitcoin has fixed its total number of coins at 21 million, while there is no such limit set in Ethereum. Some more cryptocurrencies like Ripple and NextTech are also slowly becoming popular.
Hopefully, the Government of our country will soon regulate crypto trading for the country’s investors by making suitable rules for cryptocurrencies. But it would be advisable to invest in cryptocurrencies carefully after adequate due diligence.