What is the fundamental of cryptocurrency and why did it come into existence ?

Whether to invest in cryptocurrency or not ?

Actually cryptocurrency has reached a point where each and every person should add cryptocurrency in their investment thesis based on their risk profile. Crypto is a new thing, though it is 10 years old but still considerably new, it is complex for a layman to clearly understand What are the moving parts of crypto, How to invest in it, How to hold it. In this article we are going to understand about— Why did cryptocurrency come into existence? There is a lot of money in the world, is seen all the time but despite that, Why was a new currency required? What are the reasons, Why the alternate payment mechanism?

If we look at any payment, payment bank or anything related to payment today, there is always, say If person A wants to transfer some money to person B, obviously A do not trust B, also B do not trust A, so they need a third party to validate any transaction between A and B.

That third party is responsible for first telling whether A has that money and whether B has a valid account and then making that transaction actually happens that it reaches B and it gets deducted from A’s balance.

So Bitcoin as an alternate always thought that trusting these third parties give too much of a power to them.

What happened in the financial crisis 2008 was that these third parties took advantage of the fact of this trust of the people on them.

So they wanted to create an infrastructure which could work between A and B without any external third party and that is where Blockchain comes into picture which basically helps validate a transaction which a third party would otherwise do, which makes it independent.

If A and B wanted to do a transaction, it is only between A and B and the network itself which again is trustless.

So, that is the need that people felt at the time of 2008 and that is the reason Bitcoin was created in 2009 solving up the biggest problem in compute science technology that, — How do you enable transfers without having a trusted third party?

Biased System —

But now the use case has gone much beyond. People have started looking at even loan applications as an example. If you go to the bank today and if you are trying to take a loan today, the interests of that loan or the terms of that loan will depend on how well do you know the bank, how well your history is with the bank and many different factors which might vary on who you are, say if Mukesh Ambani goes to a bank versus I go to a bank, we will definitely have different terms to negotiate with the bank.

So, Crypto is kind of a system which can be unbiased, the rules are not in somebody’s head, rules are not biased, rules are written as part of the code itself which are equal for everyone.

Crypto System is Unbiased —

So, if I go to the bank or any influential person goes to the bank they will get the same thing that they deserve, rather than any bias of the system itself. And that is what crypto has become and that is why we see a lot of cryptocurrencies trying to solve different use cases where we earlier needed trust as the matter of the fact to do any transaction to moving to a rule based engine which are equal for all. And that is why we believe that cryptocurrencies are everywhere.

The biggest thing about money was, it was a product purely built on trust. Because it was written on a piece of paper that “I promise to give someone Rs 10”, that became the trust but it was centralized. That trust was either in a central agency or a bank and what crypto has done through this concept of blockchain, it decentralized all the trust. The trust now essentially lies in the hands of a network which is not owned by anyone, controlled by anyone or biased by anything.

Now the concept of crypto or blockchain itself is not limited to only Bitcoin which has become a popular culture that —

Oh, Crypto means Bitcoin — No.

Blockchain is a technology and on the basis of that technology we can make cryptocurrency but we can make loan applications, we can authorize another entity through a distributed network.

So basically it becomes a way of creating accountability through a decentralized system that is not owned by anyone and that is the reason that a lot of people are trying to solve different use cases, be it insurance, be it anything.

Anywhere you see biases in the system and it is especially very good for a country like India where a lot of people do not have access to these systems because of these biases. Because banks or any other entiry does not have the interest to serve those people because it does not benefit them. Now those people can be part of these systems because there is not any bias at all that exists.

Bitcoin —

So with the foundation which we saw above, now came this thing called Bitcoin and we all know about the very famous paper that got published in 2009 and introduced the concept of Bitcoin and then it became populat culture.

These days, it has become a fad to invest in Bitcoin and then while that is going many more coins have come, so there is this thing called NFT, because of which Ethereum came, then there was a Dogecoin, then Elon Musk says something so something rises from there so a very weird world has been made, which frankly, maybe people like you and I have kind of access to, but it sounds like it is a very weird thing, very risky, how can something go from $10,000 to $60,000 in just one or one and half year, it almost looks like gambling.

So in all of this How should one think of investing in crypto? What are things one should keep in mind? Should it even be an asset one considers? If someone in their twenties and they are just beginning to invest in mutual funds, may be in direct stocks, should they also consider crypto? If Yes, How and Why ?

So lets go a step back and understand that money should work for everyone.

Also to tell you where the value of crypto comes in, so cryptocurrencies are like stocks in itself. More risky, but are like stocks.

Because all these use cases which are getting solved through these cryptocurrencies and blockchains are, basically, think of them as startups, who are trying to sell you today that what they are going to build tomorrow.

So if you are thinking about investing in startup or if you believe in a use case getting solved by an amazing team, by amazing network, then you can bet on them and that value would translate to a gain or a loss on how the team performs over time, that is how you invest in stocks as well.

Stock, obviously being more regulated, you have more information to take a call on them with the market manipulation and all those things are very limited because it is a regulated market in itself.

But you can equate it to the crypto market, how you are thinking of a stock going up is if Amazon sells more items, then obviously Amazon share value goes up, similar to that if a startup releasing a token, being on blockchain, serving more users every singel day the value of that token goes up because the use case that it is trying to solve in this world keeps on increasing.

So, this is how you should look at and try to understand how the value of crypto comes into picture and how it can be equated to a stock.

Being an un-regulated market, being open for all there are lots of things that can happen and it is just a start and that is where the risk versus reward ratio comes into the picture and everyone should consider that and what is the right risk versus reward ratio for them to be able to consider crypto as an investment class. Everyone should have an exposure to crypto, the percentage of it obviously varies on the individual.

What is the Process and What are the steps ? What are the things to be taken care of?

What happens today in India and a lot of countries is, people look only at earning as a parameter of success, rather than having two parallel tracks of earning and investing, so that money works for them.

And that is why this investment ecosystem becomes very very important as India grows with it. And we believe that crypto is part of that investment system, risky, but a part of it.

So how we look at crypto is that it is a risky asset class and we believe that you know a general public should have at least four to five percent of their portfolio, being exposed to crypto, how a good portfolio would look like is a balance between a risky asset class and stable asset class, ultimately giving you the gains that you were looking for at the end of your target. The target could be anything for you, you want to buy a car, you want to buy a house, you want to retire or anything for that matter. And the amount of risk you should take today to achieve that target is based on individuals. So, when you are very young, your risk appetite is higher, your responsibilities are lesser and that is where crypto comes into picture.

What is the procedure to invest in crypto? How does it actually works? Where to open an account? Where to put money? What to buy?

And also when you buy a crypto, then its ownership by definition is, maybe yours or maybe the platform’s. Some people say that if you buy it from a platform then you should try and move it to your own ownership through that lock that you create.

Go to any platform, complete KYC by providing the PAN card details and your identity details, and then we are ready to buy/sell any crypto. We can buy as low as of Rs 100, on the rate which platforms aggregate rates from different exchanges around the world to help users get the best rates on the platform and with that single click we can have that bitcoin right into our platform wallet. So that is the process we have to go through in getting into crypto as simply as just three clicks, Like buying from ecommerce platform like Amazon.

Are my crypto in platform’s wallet safe ? Should we go to take them into our own ownership and then lock it? Is it easy to sell whenever I want to sell? What is the after buying process?

So, whenever we buy any bitcoin, you can sell it anytime and take the money out, there is no lock and nothing. It is a 24/7 market so any time any day that you want to sell and get out, you simply can within a couple of minutes.

Now coming to the safety and security of the ownership of the funds that we talk about.

So, when we buy bitcoin,basically the company is holding bitcoin on your behalf. Similar to when you buy stocks, that NSDL, CDSL holds, those depository holds your stocks, similar to that platform or company hold your cryptocurrencies in their secure wallets. Now the security lies with the company today. So, anything happens to the company there would be an impact on the users itself and that is why crypto companies security is the major part that they focus on.

Usually crypto provides two kinds of storage. One is self-storage where you own the security of that storage, second is managed storage, where the other company is managing the storage for you and is responsible for the securing of those funds.

But if your investment goes beyond a certain point and then you want an extra layer of security which, you know, you want to control it yourself, you can definitely take, out those cryptocurrencies into your own personal wallets, you can have hardware wallets, you can have paper wallets where the security is a simple 18 keyword or a 24 keyword passphrase which you can write it on a piece of paper, never be online so it cannot be hacked that way.

So there are multiple levels of security that users should consider even if they are using a managed platform or a non managed platform. Depending on what is the amount that they are comfortable with the current company or they want to take it out and have the security in their own hands. Obviously the process is very complicated and that is the reason that creating the most secure platform is company’s priority.

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Source: https://sumitaccess007.medium.com/why-and-how-to-invest-in-cryptocurrency-fundamentals-ead14f9814e4?source=rss——-8—————–cryptocurrency