Cryptocurrencies – What Are They?| North Loop Official Blog
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12 Jan 2021

Cryptocurrencies – What Are They?

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Introduction -

Cryptocurrency existed as a theoretical idea way before the first digital alternative currencies came into the picture. They got initially designed to provide an alternative payment method for online transactions. The first modern cryptocurrency, Bitcoin, was the first publicly used as a means of exchange to combine decentralized control and user anonymity using blockchain and built-in scarcity.

Understanding cryptocurrency -

A cryptocurrency uses cryptographic protocols or complex code systems that encrypt sensitive data transfers. These protocols get built using advanced mathematics and computer engineering principles that make it impossible to break or duplicate the protected currencies. Cryptocurrencies essentially are digital means of exchange created and used by private individuals or groups.
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Main features of cryptocurrencies -

The three main principles that govern cryptocurrency use, exchange and transactions are as follows -

Cryptography -

Cryptocurrencies use advanced cryptography in hashing and digital signatures. The former verifies data integrity, maintains the structure of the blockchain and encodes account addresses and transactions. The digital signature allows proving that you own a piece of encrypted information without revealing that information. This technology gets used to sign monetary transactions for cryptocurrencies as it helps to validate the network that an account owner has agreed to the transaction.

Blockchain technology -

This technology creates a record that gets altered only with the agreement of the rest of the network. A blockchain is mainly a public ledger of cryptocurrency transactions wherein the completed blocks that comprise the latest transactions are recorded and added to the blockchain. A peer-to-peer network of market participants manages them by following an established protocol for validating new blocks.

Block mining -

Block mining requires a particular piece of software to solve mathematical puzzles and attach or validate new transaction records as blocks to the blockchain. The blocks get added to the public ledger or blockchain every few minutes and the faster the software processes the mathematical problem, the more number of transactions it can validate.

The main cryptocurrencies -

Bitcoin -

Bitcoin is one of the most well-known cryptocurrencies that got created in 2009. Since its characteristics resemble commodities more than conventional currencies, it usually gets used as a form of investment than a method of payment.

As a trader, you can buy cryptocurrency Bitcoin through an exchange, a digital banking platform or speculate on its prices movements via CFDs and spread betting. Bitcoin price has also undergone several dramatic variations since its launch and is known for its price volatility. You can track live Bitcoin price changes to understand the price trend.

Ethereum -

Ethereum got launched in 2015 and therefore, is relatively new in the cryptocurrency world. Like Bitcoin, the Ethereum network allows people to send and receive tokens called Ethers. These get used as a payment on the system.

The primary use of Ethereum, however, is to operate as smart contracts. These smart contracts are scripts of code which get deployed in the ethereum blockchain.

Again, you can use a digital platform to invest in crypto or buy crypto and track live Ethereum price fluctuations. It can help you in better understanding the Ethereum price variations and trends.

Moreover, experts claim that with a $132.5 billion market capitalization, this cryptocurrency is still only one-fifth the size of bitcoin and, given its increasing adoption on several payment processors, it has the potential to catch up to the much older Bitcoin.

Litecoin -

Litecoin is an early Bitcoin spinoff, and a peer-to-peer cryptocurrency set up in 2011. It was initially created for smaller value transactions than those made using Bitcoin and made almost identical to Bitcoin with some notable improvements.

This cryptocurrency requires more sophisticated technology to mine and can process blocks up to four times quicker than Bitcoin. It also has a much larger cap that currently is around four times greater than Bitcoin.

Conclusion -

Cryptocurrencies have been on the market for some years now and have also proven as profitable investment opportunities. Moreover, the recent forecasts and predictions by some of the top hedge fund experts and bankers about Bitcoin seem promising enough to give the idea of investing in any of these cryptocurrencies proper consideration. The forecast is bright for all of them to different extents, and you can invest in these cryptocurrencies far more effortlessly than before.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.