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FAQ on Bitcoin: What is cryptocurrency, will it replace dollars, how it works and other questions answered

Everyone wants to buy and sell Bitcoin and other cryptocurrencies in India but, there are a lot of questions that keep popping up. We try to answer some frequently asked questions about cryptocurrencies.

Crypto market is like stock market, just that you trade in digital currencies instead of stocks. Crypto market is like stock market, just that you trade in digital currencies instead of stocks.

Cryptocurrencies are probably the most talked about thing these days. Once hailed as the future of finance, the crypto coins have already taken over the world. Bitcoin was the first cryptocurrency to truly explode and since then, others like Ethereum, Cardano, Ripple and even Dogecoin have appeared. Most of them have grown at an exponential rate. Yes, there have been few dips as well but, the crypto market has largely been on an upward trajectory over the last 12 months.

It has picked pace in India too and a lot of people don't want to miss out on the opportunity. A number of exchange platforms have made it easier for the investors to buy and sell cryptocurrencies in India but, there are a lot of questions that keep popping up. We try to answer some frequently asked questions about cryptocurrencies.

What are cryptocurrencies?

In simple words, cryptocurrencies are digital money that can't be seen or touched but have certain value attached to them. They are support by blockchain technology which relies on a network of computers to keep track of transactions rather than on a centralised authority like a bank.

How do cryptocurrencies work?

Cryptocurrencies are still very young and their exact use case is yet to be found. They can be compared to assets like Gold or real estate as a store of value. The idea is as more and more people will start holding these coins, there value will go over time and more use case will appear.

Can cryptocurrencies be converted into rupee or any other fiat currency?

Yes. Any cryptocurrency can be converted to rupee or other fiat currency using an exchange platform.

How to buy or invest in cryptocurrencies?

Cryptocurrencies can be bought using various exchange platforms. The investors can download the apps from Google Play Store or App Store. They just need to sign up using their credentials, complete the KYC process, transfer money to the wallet and make the purchase.

The popular Indian platforms include WazirX, Zebpay, Coinswitch Kuber and CoinDCX GO. The investors can also buy Bitcoin, Dogecoin, Ethereum and other cryptocurrencies through international trading platforms like Coinbase and Binance.

What are the things to keep in mind while investing in crypto?

Just like any other investment, crypto is also a long term solution. It has taken Bitcoin almost a decade to reach the levels it is at. Also, the market is new and more volatile than any other financial market. So, be patient, research well before investing and do not panic.

Are cryptocurrencies prone to fraud?

Yes. Anything that involves money will always invite trouble. The bigger challenge with cryptocurrencies is that they are still unregulated in India. This means anyone can create an exchange platform or a coin and starting selling it. The investors should ensure that they don't fall for it. You should only invest in a crypto after checking its history and only through a trusted platform.

Can cryptocurrencies be used to make online purchases?

No, not at least in India. There are no companies or e-commerce platforms in the country that allow users to make purchase using cryptocurrency. However, they can be used to buy tokens on exchange platforms. More on that below.

Is cryptocurrency legal in India?

Yes. Cryptocurrencies are not illegal in India but, they are not regulated. The government had proposed a bill earlier this year that had provisions to impose a ban on all cryptocurrencies including Bitcoin and Dogecoin. However, there has been no further development on that.

Why do the price of cryptocurrencies fluctuate?

The crypto market works just like stock market. The latter also witnesses ups and downs. However, the crypto market is young and more volatile. This is why it reacts more to developments and hence, we see more fluctuation.

Why the world needed cryptocurrencies?

Cryptocurrencies were created as an attempt to decentralise financial transactions following the 2008 financial crisis. The idea was to put the power in the hands of people and reduce dependency on banks and governments. The early creators argued that governments print as much fiat currency as they want which has or will reduce its value over time. This is why a cap was put on crypto coins. For example, there are only 21 million Bitcoins in the world.

What are the concerns around cryptocurrencies?

The major concern around cryptocurrencies is that they are largely built around speculation. Most crypto enthusiasts are hoping that the market will evolve and grow over time which will increase the value of these currencies and make them more mainstream. However, there is a huge chance that it might not happen. Commodities like Gold and Silver have co-existed with fiat currency but, are only look as a store of value and not a mode of payment.

Can crypto replace fiat currency?

No. It's very difficult to predict future but the idea of entirely replacing fiat currency is far-fetched. The best case scenario is that the governments will take more control over cryptocurrencies, introduce new regulations and allow more seamless transactions. But, they are unlikely to replace rupee or any other fiat currency.

What is crypto market?

Crypto market is like stock market, just that you trade in digital currencies instead of stocks. The major difference is tha cryptocurrency markets are decentralised, which means they are not issued or backed by a central authority such as a government. The entire market runs on a network of computers.

What are the top cryptocurrencies in the world?

Bitcoin, Ethereum, Cardano and Ripple are the major cryptocurrencies in the world. Most of them have their specific purpose. For example, Bitcoin is seen as a substitute to Gold, while Ethereum is looked upon as a super computer. Then, there are meme coins as well. These include Dogecoin, Shiba Inu coin and others. They were created for fun and shouldn't be taken too seriously.

Can one cryptocurrency be converted into others?

Most exchange platforms allow investors to convert cryptocurrencies into tokens. These tokens can then be used to purchase other currencies within the crypto world. For example, WazirX has WRX tokens which can be used on its wallet. Coinbase had added a feature recently which allows users to directly convert cryptocurrencies but, it is limited to US customers for now. The feature works with Bitcoin (BTC), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC), 0x (ZRX) and Bitcoin Cash (BCH).