Cryptocurrency: digital money secured by cryptography, exchanged through a computer network, with no physical form.
- Origin of the term
- Key Characteristics
Crypto vs. Traditional Money
| Feature | Traditional Money USD, EUR | Cryptocurrency |
| Control | Central banks & governments | Decentralized network |
| Transfer | Banks/payment services | Direct peer-to-peer |
| Physical Form | Cash, coins, digital balances | Purely digital |
| Creation | Printed by governments | Created by code e. g., Bitcoin |
| Access | Requires bank account | Internet wallet |
- First cryptocurrency: Bitcoin, released in 2009 by the pseudonymous Satoshi Nakamoto.
Money or Investment?
- Original purpose: serve as a medium of exchange like USD
- Current reality
- Volatility: price swings make everyday use impractical e.g., coffee price fluctuates from 0.001 BTC to 0.002 BTC.
How Does Cryptocurrency Work?
Blockchain is a distributed, unchangeable record that stores groups of transactions in blocks that are linked together in the order they happened.
Blockchain Analogy
- Bob’s notebook: Every transaction is recorded, locked, and copied by every participant.
- Block: a “page” filled with transactions.
- Chain: when a block is filled, a new block is added, making a chain that can’t be changed.
Transaction Process
1. User initiates a transaction e. g., send0.5 BTC.
2. Network of computers nodes receive the details.
3. Nodes validate by solving a hard puzzle Proof-of-Work or using other consensus methods.
4. Once validated, the transaction is added to a block and linked to the chain -permanent & unchangeable.
Mining & Consensus
- Miners: computers that solve puzzles.Reward: newly minted coins (e.g., Bitcoin block reward).
- Proof-of-Work POW: mining method used by Bitcoin.
- Proof-of-Stake POS: alternative e. g., Ethereum – not covered in detail here.
Cryptocurrency as an Investment
Historical Returns Illustrative
| Year Bought | Price USD | Year Sold | Price USD | Return |
| 2016 Bitcoin | $500 | 2024 | $60,000 | 13,000% |
| 2022 May | $45,000 | Dec 2022 | $16,000 | -65% |
| 2022 Dec | $16,000 | 2024 | $70,000 | +337% |
- High reward = high risk
- Volatility drivers:
Why So Volatile?
- Speculation: investors chase trends.
- Media hype: sudden spikes e. g., Bitcoin ET F announcement.
- Regulatory news: price drops when countries ban crypto.
Key Terminology in Cryptocurrency
Bitcoin: The original and most valuable cryptocurrency, often called digital gold due to its limited supply.
Altcoin: Any cryptocurrency other than Bitcoin; includes Ethereum, Solana, and meme coins like Dogecoin.
Wallet: Software/hardware that stores public and private keys; does not hold the coins themselves.
Key Types:
- Public key – address others use to send you crypto.
- Private key-secret password that proves ownership.
Fork: A split in a blockchain creating two separate versions e. g., Bitcoin = BitcoinCash.
Wallet Types & Examples
| Wallet Type | Storage | Pros | Cons |
| Hot wallet | Online cloud, mobileapps | Convenient, quick access | Vulnerable to hacks |
| Cold wallet | Offline hardware, paper | Very secure | Less convenient, risk of loss e. g., lostharddrive |
Pros and Cons of Cryptocurrency
Advantages
- Decentralization – No single authority controls it.
- Accessibility – Anyone with internet can participate.
- Flexibility – 24/7 global transfers with low fees.
- Privacy – Transactions are encrypted, harder to trace still on public ledger.
- Potential for high returns-dramatic price increases possible e. g., 600.
Disadvantages
- Volatility: Prices can change a lot, which means you could lose a lot of money.
- Uncertainty in regulations: Government rules can have a big impact on prices.
- Risks to security: include hacks, losing private keys, and frauds.
- Limited acceptance: Not many stores will let you use crypto to buy things.
Summary Cheat-Sheet
| Concept Definition blockquote | ConceptDefinition blockquote | Key Point |
| Cryptocurrency | Digital money secured by cryptography | No physical form, peer-to-peer |
| Blockchain | Distributed, immutable ledger | Secures transaction history |
| Mining | Solving puzzles to validate transactions | Earn new coins PoW |
| Proof-of-Work | Consensus requiring computational effort | Bitcoin, high energy use |
| Proof-of-Stake | Consensus based on stake of coins | Lower energy, used by Ethereum |
| Wallet | Stores public & private keys | No coins stored, keys give control |
| Fork | Splits a blockchain into two | Creates new coin e. g., BitcoinCash |
- Examples: In just one year, the value of Dogecoin went up and down a lot. This shows that a Dogecoin user could become rich or poor in the same year.
- Volatility is the term for how quickly and without warning the prices of cryptocurrencies can change. An event in another market, the mood of the market, or rumours often cause these changes.
- Key Points
| Asset | Peak Gain | Time to Drop | Outcome |
| Dogecoin | 2023-2024 | 1 year | Rapid wealth – rapid loss |
Illegal Transactions
- Privacy of crypto transactions attracts criminals seeking to hide illicit activity or launder money.
Illegal transaction: The use of cryptocurrency to move funds in a way that evades detection by authorities.
- Why crooks are interested
Implications
Law-enforcement struggles to track crypto flow.Regulatory bodies, such as AML-KYC rules, push for methods that make it easy to track money.
Regulatory Uncertainty
- Governments cannot fully control cryptocurrencies, creating tension.
Regulation uncertainty: The lack of clear, consistent legal frameworks governing the use, trade, and taxation of digital assets.
Current landscape
- Debate that is still going on in the U.S. Presidential election.
- Potential changes in how crypto can be used.
Potential outcomes
- New regulations could limit or shape market activities.
- Both users and exchanges may have to follow more rules to stay in line.
Scams
- Two common scam types:
1. Fake website – offers returns that are too good to be true and then stops payments.
2. In a classic transfer scam the victim gives crypto, which can’t be taken back.
It is impossible for a central authority to undo or reverse a cryptocurrency transaction once it has been recorded on the blockchain.
Why con jobs work
- Trust methods that aren’t centralised or regulated.
- Not enough safety for consumers.
Lack of Consumer Protection
There is no one in charge who can step in when things go away.
Consumer protection is the safeguard for users when transactions fail or fraud occurs; in cryptocurrency, this is largely absent.
- Comparison
Banking: disputes can be reversed, and banks intervene.
Crypto: irreversible transactions; no recourse.
- Risks
Loss of funds due to mistake or fraud is permanent.
No insurance or dispute resolution mechanisms.
Decision Guidance
- Research: Before you invest, learn about the technology, the market, and the risks.
- Don’t let fear of missing out (FOMO) make you join in just because of hype.
- Trading Roadmap 0 to 1 cr
Learn a six-step roadmap to become a disciplined and profitable trader. This guide covers how to secure a stable income, back-test strategies, find a mentor, and manage risk effectively. Discover how to use a trading journal to track performance and avoid common pitfalls for long-term success. - Term Life Insurance Explained: Guide to Choosing the Right Policy
Secure your family’s future with term insurance. This guide explains how to choose the right policy by comparing key metrics like claim settlement and solvency ratios. Learn how to calculate the ideal coverage amount and find affordable premiums to protect your loved ones from financial hardship. - How to Become a Crore-Pati
Learn how to accumulate your first crore (10 million rupees) through disciplined investing, regardless of your current income. This guide covers step-up SIPs, the power of compounding, and essential financial pillars like an emergency fund and insurance to secure your financial future.