Planning to invest in Bitcoin, other cryptocurrencies? All FAQs answered (2024)

1. What is a cryptocurrency?
   Ever received a paper token from your next-door paan shop in lieu of a small change, which he would accept the next time you visit him? Imagine that token digitally, and that's your cryptocurrency. The big difference is, here there is no owner-issuer and it would, at least in theory, be accepted globally. Cryptocurrency is a digital or virtual coin secured by cryptography, which makes it next to impossible to counterfeit. They have their own store values, and are designed to use as a medium of exchange for buying goods or services. Cryptocurrencies are decentralised, meaning that no authority regulates them. They are built on the blockchain network technology, which ensures transparency and helps track every transaction. Such currencies, theoretically, are immune to government interference or any kind of manipulation. Because cryptocurrencies do not have an underlying economic base, they are inflation-proof. Plus, the digital structure facilitates free portability across geographical borders, divisibility and transparency. However, they are often criticised for the possibility of misuse in illegal activities, exchange rate volatility and the vulnerability of the infrastructure underlying them.
2. How do cryptocurrencies work?
   Cryptocurrencies work using a technology called blockchain. They are tokens that can be used as a form of payment in exchange for online goods and services. They carry a pre-determined store value of their own, just like any other fiat currency like the US dollar or the Indian rupee. Cryptocurrencies are digitally mined, where very sophisticated computers solve extremely complex computational mathematics problems. Their mining is painstaking, costly and only sporadically rewarding.
3. What is blockchain technology?
   Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. Virtually anything of value can be tracked and traded on a blockchain network, reducing the risk and cutting costs for all involved. Unlike a typical digital database, blockchain stores data in blocks that are then chained together. As new data comes in, it is entered in a fresh block. Once the block is filled with data, it is chained to the previous block, which then chains the data in a chronological order. Blockchain’s most common use so far has been as a ledger for transactions. In the case of cryptocurrencies, blockchain is used in a decentralised way so that no single person or group has control over it and, instead, all users can retain control collectively. Decentralised blockchains are immutable, which means data once entered is irreversible. In the case of cryptocurrencies, this means transactions are recorded permanently and can be viewed by anyone.
4. How to invest in cryptocurrency?
   Investing in cryptocurrency has never been easier, thanks to the deep penetration of the internet and smartphones, along with all the different crypto exchanges currently available. Technology has eased the access to digital currencies for potential investors. However, it remains important for investors to first do some homework for choosing the right cryptocurrency and crypto exchange. Various applications and sites like Mudrex makes this easy for investors by making all the relevant information available in one place, and providing products suitable for both newbies and experienced investors alike.
5. What are the key steps to buy cryptocurrency?
   Buying cryptocurrency is a straightforward process with four key steps:
   • Choose a crypto exchange.
   • Create your account and complete the verification process.
   • Deposit funds via UPI or bank transfers to start investing.
   • Place your order to buy the desired cryptocurrency.
   Additionally, you can explore other investment options, such as purchasing a basket of cryptocurrencies with a common theme, like large-cap or mid-cap, similar to an ETF.
6. What is the minimum amount you can invest in cryptocurrencies?
   There is no defined limit to invest in cryptocurrencies, just like there is no minimum limit to invest in stocks. However, there is some difference. If you do not wish to buy an entire cryptocurrency, you are allowed to buy small units of it. You can start with as little as ₹500.
7. Can you invest Indian rupee in crypto?
   Yes, you can invest in cryptocurrencies using Indian rupees, but you can't use physical cash. You can add funds in your preferred crypto exchange's wallet through UPI/ Bank transfers and invest in the cryptocurrency of your choice. Exchanges charge some fees to facilitate your transactions when you make an investment/redeem your investment. Platforms like Mudrex offer some of the lowest transaction fees in India.
8. Can cryptocurrencies be used to make online purchases?
   Yes, cryptocurrencies are a medium of exchange, which can be used to make payments for online purchases. There are hundreds of online shops and retailers that accept Bitcoin and other cryptocurrencies. However, there is a catch. Both the buyer and seller should agree to accept the particular cryptocurrency for the deal. There are various search engines to find the goods and services that can be purchased using cryptocurrencies.
9. Why should you invest in cryptocurrency?
   If an investor believes in the technology-backed digital currency, then cryptocurrency should be his cup of tea. Just a decade-old asset class, it has yielded astronomical returns over the years. Some investors look to use these digitally coded tokens to hedge against inflation. Despite high volatility and speculations, there are multiple reasons that they can become mainstream in the coming future.
10. Is cryptocurrency legal in India?
    This question does not have a plain vanilla answer in ‘yes’ or ‘no’, as the government and the central bank still look unsure as to how to deal with this new-age phenomenon. In 2018, The Reserve Bank of India (RBI) came out strongly and kind of banned these tokens in India. Then in 2020, the Supreme Court of India reversed the RBI ban. That move was welcomed by the crypto exchanges and investors throughout the country. After this, Indian banks have tried to curtail transactions with crypto-exchanges as, in their view, they are governed by RBI. But later, RBI mentioned that banks cannot quote its 2018 ban to customers as it was overruled by the Supreme Court, paving the way for crypto trading to continue in India.
11. What are coin sets?
    Coin sets are baskets of crypto tokens based on popular themes. They save users the trouble of picking and choosing from over thousands of cryptocurrencies. Instead, they can invest in broader themes that they believe in, giving them a better chance of making higher returns, benefitting from the diversification Coin Sets offer as well. For example, a Coin Set called ‘DeFi Tracker’ is a basket of the top 10 DeFi tokens. Mudrex’s in-house experts curate and rebalance each Coin Set regularly to ensure you always keep up with the crypto market.

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