Welcome to the 8th edition of the Finconomist - The Finsnap Newsletter!
We hope you all enjoyed reading the previous editions as much as we did making them! (If you missed any of them, you can always find them on our website!!)
This time, we bring to you something in the field of Fintech - one of the most upcoming and happening fields of today's modern world - CRYPTOCURRENCY! So get ready for another ride across the Finsnap Ocean - a plethora of fun personal finance principles, terms as well as digital tips!
We all have heard terms like bitcoin, cryptocurrency and blockchain being thrown around. Where is this currency? How is it used? Why is it used? And most importantly, what is it? Today’s edition of the finconomist covers all of these questions that you may have about cryptocurrency.
What is cryptocurrency?
Crypto = secret, secured
Currency = something that is accepted as money by everyone in the country and world Therefore, the main features of cryptocurrency are:
It is a virtual currency which is internet based
It uses technology such as strong encryption systems to ensure safe transfer and receipt of money. Encryption is a method of changing the original information given into a complex code which can only be converted into normal information by an approved device or authority. Think of it this way, you are passing a chit to your friend across the class but you do not want the people who will be passing your chit to understand what you have written. So you come up with a secret language that only you and your friend know and thereon you pass chits in that language only. That is exactly how an encryption system works.
It is not issued by any central authority such as the government and Reserve banks ( a supreme bank, that acts as a bank to other smaller banks).
It is very different from online banking. In online banking, the original currency of the country eg. rupee is transferred virtually. But cryptocurrency itself is of a token money form (think- a virtual coin). You transfer these coins between each other as money. The most famous and valuable coin type is Bitcoin.
Where is it and how do people use it ?
Cryptocurrency can be bought using cash, online money from bank accounts and credit cards. The websites selling it depend on whether your country allows them to sell it or not. The same websites often allow you to make transfers and receipts.
Your virtual coins are stored in digital wallets. These can be of three types a. Online wallet (unsafe due to possibility of easy access by someone else). b. Software wallet that is created by downloading an app (safer as it keeps the money offline). c. Hardware wallet that is created inside another device itself that can be plugged in and out of your computer (safest as it is separate from all other devices).
Why is it used and valued ?
It is considered as an investment option. This is because its value keeps changing everyday. The value changes occur because there is no fixed value that is set by any central authority. The value depends on people’s willingness to pay for it eg. if you’re told that 50 of your bitcoins are worth $100, this means that till now many people have made transactions where the value of a single bitcoin on average came out to be equal to near $2 each. This is called market value as a market consists of all these people who buy and sell. You can make profit by selling bitcoins at a higher value than what you bought them at.
A bank would usually charge you a fees for making an online payment/receipt, right? Well, cryptocurrency consists of you making virtual, direct cash transactions, just like how you would pay for a pencil at a stationery shop. Hence no fees is charged and you save money.
It is free from central authority control so no authority restrictions on it.
You are free to view a record of your transactions and you are in full control of your own money.
How is Blockchain related to cryptocurrency?
Blockchain is a technology that is used to store data about transactions made with cryptocurrency. It is basically a virtual record keeper of your virtual money.
It has encrypted blocks where it keeps information about your transaction safely. Multiple blocks like this are connected as a chain of data about your transactions. This chain is completely visible to you privately.
However being relatively new, this currency has its own pitfalls. It is used by many people to carry out illegal transactions and commit crimes, it is not very easy for a new person to understand and use safely, and it is a very volatile investment. This means that it can have drastic falls and rises in its value in a very short amount of time. Since it is not money issued by a central authority, you cannot seek legal aid in case something untoward happens with your money.
Nevertheless, cryptocurrency is an upcoming and booming method of investment. It may also replace cash and coins in the incoming future. Also there is no harm in having a little extra knowledge and understanding about such a hot topic ( cue bragging rights) !
Here are the links for a few articles/videos which you can explore in case you want to know more!
We hope this peek into the world of Fintech and one of the most upmcoming investment method has made you a little more aware and we hope you are one step closer to financial mindfulness!
P.S: Feel free to reach out to us if you want to talk about finance in a way that doesn’t put you to sleep. Or drop us a line saying hi! firstname.lastname@example.org
Until next time; Adios, Amigo! Team Finsnap