• Decentralized
  In simple terms, here Decentralize means free from any central authority. Cryptos work on a peer-to-peer network of computers, with an internet connection, across the world. You can trade in Crypto through centralized exchanges like WazirX. But there is no such central regulatory body (like SEBI, SEC, etc.), government or organization controlling these Cryptos as an instrument. Thus, making it free from political interference and influence.
• Secure
  Since cryptos are backed by a technology called the blockchain, there are very few chances of the system getting hacked. This makes it secure. Blockchain records every transaction and these records are openly available to the public. This further ensures its transparency. Now, how does this Blockchain work? It is discussed in the latter part of this blog.

• Irreversible transaction
  Just like we have a unique UPI ID for online transactions, cryptocurrencies have public and private keys. To transact, we need to input this key and the cryptos will be transferred to that key holder. However, if we make an error while entering this key, the cryptos will be transferred to the wrong key holder. Unfortunately, these transactions cannot be traced and you might lose your cryptocurrencies, as a refund is not an option.
• Host of illegal activities
  Cryptocurrencies are believed to be a host of illegal activities due to their anonymity feature. Some cryptocurrencies ensure anonymous transfers with no maximum amount limit which has encouraged money laundering and tax evasion activities in the world. In such cases, it becomes difficult for Governments to trace such fraudulent actions.

Is it Legal?

Well, Blockchain is the technology supporting the transfer of Cryptocurrencies. However, it also finds application in other industries like healthcare, logistics, e-commerce and many more. Blockchain is a global online database, which can be viewed by anyone, anywhere with a computer and an internet connection. In the case of Cryptos, it records the data of all the transactions taking place around the world. Due to this, it is also known to be a “Public Distributed ledger”. This database cannot be altered or hacked because it is visible and validated by the network users.

• How does it work?
  As and when the transactions happen, it is being recorded in something called a “Block”. This block contains the transaction details like who is sending the crypto to whom, where, and how much they are sending. Each block has a unique code called Hash. It is created using complex cryptography algorithms, every time a block is formed. Once a block of transactions is complete, it will be linked to a new block. Thus, forming a chain of blocks on the network, which cannot be tampered with due to heavy encryption. All of this was made possible with the help of Blockchain technology.

People usually use the terms Bitcoin and Blockchain interchangeably. But, that’s not the case. Bitcoin is a cryptocurrency backed by blockchain technology. Let’s move on to a little more advanced level and understand how a bitcoin transaction takes place on the network.

Assume, Mr. A wants to send 1 bitcoin to Mr. B. Every network user has 2 keys- a Public key and a Private key. Think of the public key as your UPI ID which can be public, and the private key as your PIN which you do not share with anyone. Mr. A initiates the transfer of bitcoin by entering his and Mr. B’s public key. After that, Mr. A will digitally sign and encrypt this transaction by entering his private key. This transaction is now transmitted across the Blockchain network.

This transaction will become a part of a Block that needs to be validated before it is added to the Blockchain. This block will be validated by someone called Miners on the network. They solve a complex mathematical problem to validate a block and are in turn, rewarded with a few bitcoins. This process of validating a block is called ‘Proof of Work’ and the process of adding a block to the blockchain is called ‘mining’. On average, Bitcoin validation happens in 10 mins. Once validation is complete, all Mr. B gotta do is enter his private key to decrypt the transaction and receive his bitcoin.

Cryptocurrencies have evolved as a new option for portfolio diversification. There are so many options under the crypto umbrella to choose from. Some cryptocurrencies even offer fractional investment. Before investing in cryptos, one must note that it is not regulated and is technology-dependent. Even though few cryptos have proven themselves, if things go south, one might lose all of their crypto holdings.

I hope this blog has made understanding Cryptocurrencies a little easy for you. If you want to learn more about it stay tuned to my YouTube Channel, as I will be covering the “Basics of Cryptocurrency” in a series soon. Until next time!