Cryptocurrency, the current trending financial terminology in the entire globe. There are around 4000 cryptocurrencies in the entire world as of Jan 2021 and many of us are just aware of hardly 2-3 cryptos. Cryptocurrencies are viewed as a profit-making source due to their current boost. And because of this, many people tend to ignore its volatility features and market efficiency. Many young minds out there have these common questions like What exactly is a cryptocurrency? Why is there a bubble being created around it? Why such hype? What technology does the crypto work on? Let’s try to clarify one question at a time.

What is Cryptocurrency?

Cryptocurrency as a concept is a digital asset, a digital currency which is been designed to work as a medium of exchange over the internet, where coin ownership is stored in a computerized database using strong cryptographic methods in order to boost the security of the transactional records. The exact year and the creator of cryptocurrency are unknown to the world, but it was developed around 2009 by an anonymous programmer or a group of people under the name of Satoshi Nakamoto. Bitcoin is believed to be the first cryptocurrency to be created.

Technology behind Cryptocurrency

Cryptocurrency runs on blockchain technology. Blockchain Technology is a digital ledger of transactions that is duplicated and distributed across the entire computer network. Blockchain is one of the most secure methods of recording and storing information on a digital platform which is impossible to change, hack or even break the system. In the blockchain, data is stored in blocks and once that block is filled, it is then chained onto the previous block creating a data chain in chronological order. Blockchain technology is decentralized, which means there is no central authority. There is no single person or a group has control over it - rather, all users have equal control over it. The transactions are processed through thousands of computers in the network around the world.

How are Cryptocurrencies created?

New crypto-coins or cryptocurrencies are created by a process known as “Mining”. “Mining” is the act of verifying, encrypting, and securing transactions in each block.

Mining a cryptocurrency is a process where many powerful computers compete against each other to solve complex and cryptographic mathematical problems. They compete to mine a currency’s block which rewards them a predetermined amount of coin. These blocks are then added to the ledger after a certain amount of time. When transactions are confirmed, new coins are created. Most of the currencies use Proof-of-Work (PoW) algorithm to verify blocks within the blockchain which also helps to prevent attacks on a cryptocurrency. Mining requires an intense amount of energy often generated from fossil fuels. Running these complex computers requires a massive electricity supply.

Coin Market Cap

Did you know that Bitcoin has a mining capacity of only 21 million? Every cryptocurrency ever mined has its own unique market cap. Some of them are finite, while some have an infinite market cap. Finite Cryptocurrencies like Bitcoin, Cardano, Litecoin, ChainLink, XRP, etc. are bound to hit their market cap and at that point, they will no longer be minable. Other currencies such as Dogecoin, Ethereum, Tether, Polkadot, etc. have an infinite supply. A major disadvantage of infinite supply is that the reward for mining a block often lessens overtime to keep up with the inflation.

Current Crypto Situation

Cryptocurrencies were hidden until the late 2010s, when suddenly Bitcoin caught the attention of millions of investors when its price hiked from $1,028 from Jan 2017 to an all-time high of $19,783 at the end of Dec 2017. Since then, Bitcoin has been at its highest peak of $66,514 in April 2021; a sudden rise of 246% from December 2020 to April 2021. Along with Bitcoin, Ethereum becomes the 2nd most popular and expensive cryptocurrency. Ethereum was created as an alternative to Bitcoins and to improvise its demerits. Another crypto that came to light was Dogecoin after the hysterical tweet from Elon Musk went viral worldwide. The idea of Dogecoin was to create a payment system as a joke, to make fun of the speculations of cryptocurrencies at that time. The price hiked from $0.059 to $0.39 in just 7 days of April 2021, a whopping 560% rise. And then a rapid fall of 130% from its all-time high of $0.74.

This just amounts to show that the price volatility of Cryptocurrencies is very high. Any huge comment on the crypto market in the globe tends to shake the entire stability. Although cryptocurrencies are at the starting stages of their bright future, currently the crypto market is very unstable. Investors tend to run after profits rather than looking at the broader perspective of why the Cryptos were designed for. Nevertheless, cryptocurrencies have received significant interest from various financial and government institutions, venture capitalists, angel inventors, and retail consumers.

Cryptocurrencies are being made legal in most of the countries across the world few of them being U.S, U.K, Japan, South Korea, India, Israel, etc. India’s RBI is currently planning to mine its very own Cryptocurrency which will boost the Indian Economy in the upcoming future. Whereas in recent news, China banned the use and mining of cryptocurrency which speculated a crash of net prices of major crypto coins. Looking at the past few months of the Crypto market and its volatility, the Chinese Government took this major step in order to prevent an economic burst in the mere future which would disrupt the financial stability of the country. This huge decision created havoc amongst the Crypto coins as their price values dipped to a great instinct.

The top 10 Cryptocurrencies are listed below as of 22nd May 2021 –

Conclusion

Crypto Market is currently at its genesis, just like Stock Market was in the early 1980s. No one could have imagined way back then, that the Stock Market scenario would rise rapidly to such a great extent in less than 50 years. The cryptocurrency market at the present day is volatile, unstable, and unpredictable; But it is bound to bloom in the coming future. There is a lot of misconception and skepticism about crypto-based on what we are witnessing right now. But over the long term, these things will be of little significance if you get into the right crypto, that has the potential and functionality to sustain in the future, and by having patience and trusting in time, you won't regret getting into this universe.

There’s Volatility, there’s FOMO, there’s Scam. But the real question is do you have the ability and the risk appetite to identify the right crypto or not.