Digital currencies and how they work

A cryptocurrency is a medium of exchange, such as the rupee or the US dollar, but is digital in format and uses encryption techniques to both control the creation of monetary units and to verify the exchange of money.
Bitcoin is considered to be the world’s best known cryptocurrency and is the largest in the world according to market capitalisation, followed by Ethereum.
In traditional financial deals, where two parties are using fiat money, a third-party organisation, usually a central bank, assures that the money is genuine and the transaction is recorded.
With cryptocurrencies, a chain of private computers is constantly working towards authenticating the transactions by solving complex cryptographic puzzles.
For solving the puzzles, these systems are rewarded with cryptocurrencies. This process is called mining.

Satoshi Nakamoto — the person (or a group of people) who is said to have conceptualised an accounting system in the aftermath of the 2008 financial crisis had mooted an idea where the transactions and the value of money would be recorded digitally on a publicly available and open ledger that contains all the transactions ever made, albeit in an anonymous and encrypted form. This ledger is called the blockchain.
Bitcoin and the thousands of cryptocurrencies are essentially codes recorded on a blockchain that gets longer and longer as more people use them.
Bitcoins are said to be highly volatile making it a risky asset.

What are stablecoins?

Stablecoins are digital currencies that are backed by a fiat currency such as the US dollar, thus giving it an intrinsic value.
From an investor point of view, stablecoins become easier to understand considering the underlying reserve asset.
There is also a case being made by sovereign governments for stablecoins such as Tether, USD Coin and Diem (proposed by Facebook’s parent company Meta) given that it could increase the reach of their fiat currencies in the digital ecosystem.

There are two ways. The first is to buy it from someone and the second is to mine new crypto coins.
Buying it from someone usually happens in two ways, an exchange-facilitated transaction or a peer-to-peer transaction.
To be able to trade or invest in cryptocurrencies using INR, users need to register on one of the exchanges by completing a KYC process.
Then, a user buying crypto for the first time will need to load INR money in the wallet of their cryptocurrency exchange.
The cryptocurrency wallet is identified by a unique address represented by a randomly generated combination of numbers and letters.

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