3 min read

What is Blockchain and should you invest in cryptocurrencies?

bitcoin

Before diving into the decision of investing in cryptocurrencies lets try to understand it a bit.

[Optional Reading Start] Blockchain is a series of data linked together. All of the transactions coming onto the network are grouped into blocks of data and then chained together using sophisticated math. The blocks are connected to each other and have unique identifier codes (called hashes) that connect them to the previous and the subsequent blocks. This forms a blockchain, usually in the form of a continuous ledger of transactions. [Optional Reading End] It isn’t owned by any one individual. The series is managed and stored across several computer systems. Each ledger is shared, copied and stored on every computer connected in the system.

This decentralized nature of storage provides security, since changing the details of one record will cause the hash of that block to change, disconnecting it from the next one. Since the data is stored on multiple systems, any person looking to change the details on one system will have to do it for every other system as well.

Cryptocurrency

Blockchain technology has been the backbone of bitcoin and other cryptocurrencies. The transparency and the security offered by the technology are some of the main reasons why cryptocurrency has become so popular. A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency.

There are many cryptocurrencies available in the market like Ethereum, Ripple, Litecoin, etc but the most recognizable is the Bitcoin. Many people believe that cryptocurrencies offers a great investment opportunity in the current situation. Trading in cryptocurrency has tremendously increased in India after the lifting of the ban by the Supreme Court in March. Infact, the price of Bitcoin has already risen above its pre-pandemic levels. However, cryptocurrencies are high-risk investments. Their market value fluctuates like no other asset’s. Bitcoin fell almost 75% in 2018 after achieving its all-time high and then it again rose by 200% and crashed 30% after that. Moreover, it is currently unregulated in India and has also been associated with high-value online frauds. Also, there have been some scams as well in the past.

They also don’t have any intrinsic value and are seen as a hedge against the volatility of the global market, just as gold(but gold has intrinsic value). So, if anyone wants to invest in cryptocurrencies, they should be careful about its volatility and lack of regulation. It will become a more attractive investment option once Government or RBI gives it a clean chit, until then its legality remains questionable.

Disclaimer: This article is purely for educational purpose and should not be considered as investment advice. Please speak to your advisor for more clarity.