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No need to fret, guys. The binary 1s and 0s above simply reads “Hello Friends”. Phew! No wonder cryptocurrency is confusing. But your financial guru Loan Singh is here today with another informative post on Cryptocurrency.
Our finance blog gets tons of questions from avid readers. We get questions such as:
- Does Cryptocurrency have any future in India?
- Can I get a Bitcoin personal loan?
- What is the meaning of Cryptocurrency?
- I want to know everything about Bitcoin. Tell me more…
- Which is the best Cryptocurrency? And so on…
Almost every finance blogger or news snippet features something about Cryptocurrency. Everybody wants to know more about this digital currency that values at billions but yet has no physical jurisdiction running it. This brings gawks and doubts when people discuss Cryptocurrency.
We thought of putting up a piece on every possible aspect of Cryptocurrency. What are they, which are its biggest exponents (including Bitcoin) and quell any doubts if Loan Singh provides Bitcoin loan or not J We also look at any possibility of Bitcoin becoming legal in India in 2018 or not.
Loan Singh being synonymous with digital economy is fair because I love serving our underserved salaried friends. Individuals who otherwise would get a loan application rejected at banks due to no prior credit history. You don’t need any credit history with Loan Singh. You do need your latest 6 months bank statement along with Aadhaar and PAN.
What is Cryptocurrency?
Finance analysts around the world are reveling about its emergence, at the same time; its features are discussed aggressively in panel meets and boardrooms of banks, governments, and financial circles.
In late 2008, a mysterious inventor named Satoshi Nakamoto announced a ‘Peer-to-Peer Electronic Transaction System’ termed as Bitcoin. Satoshi’s goal, with the introduction of this cryptocurrency, was to prevent double spending by making use of a P2P network. An important aspect of Satoshi’s invention was that he found a way to build decentralized digital cash system. One thing we must understand is that for digital cash (a currency which has no tangible presence and is used online) to work, one needs a payment network set-up which includes accounts, transactions, and balances. A huge roadblock to avoid, for any form of currency (or crypto), is ‘double-spending’. Double-spending is the practice of the same entity spending an amount twice. So, the central server has to be able to keep track of each transaction – maintaining its source and its next destination.
For a decentralized network, you do not need a central server. Every single entity of the network has to do the tracking by itself. Every peer needs to have a list of transactions to check if future transactions are valid. Cryptocurrencies use a decentralized technology to let users make secure payments and store money without the need to use their name to go to a bank. They run on a distributed public ledger called as a Blockchain, which records all the information about past transactions and all the transactions which have happened prior to the next one. Cryptocurrency is viewed as a monetary value which is free from government control and bank fee or charges. Blockchain plays the part of verification and Bitcoin is seen as a tool of cryptocurrency for private and anonymous transactions. As of July 2017, the total number of Bitcoins in circulation amounted to approximately 16.5 Million. As of March 2017, a single Bitcoin valued at $1268, exceeding the price of gold ($434 per 10gm) for the first time.
How does Cryptocurrency work?
A Cryptocurrency consists of a network of peers. Every peer has a record which shows the complete history of all transactions and thus the balance of every account. An example of a transaction could read ‘Ganesh gives 50 Bitcoins to Ritesh’ and is signed by Ganesh’s private key. All it contains is a public key cryptography. Once signed this transaction is put up on the network, sent from one peer to another. Each transaction is a block and connects to the previous history like a chain.
The transaction is instantly recognized by the entire network. Confirmation happens after some time and is an important aspect of cryptocurrency. As long as a transaction is unconfirmed, it is pending and can be forged. Once confirmed, it is consolidated and becomes non-reversible; and becomes a part of Blockchain. Now, this confirmation of transactions can only be done by miners. Their job over the cryptocurrency network is to stamp transactions as legitimate and spread them across the network. Miners are hence rewarded with a token of the cryptocurrency (Bitcoins). Anybody can be a miner. As cryptocurrency is built on a decentralized network, there is no authority to delegate any tasks to miners. Miners have to keep an eye out for forgery such as a situation where hundreds of peers spread forged transactions.
Cryptocurrency allows the exchange of digital currency completely over the internet. Cryptography helps secure all the information that is involved in creation, transaction, and validation of the currency exchange. The creation of cryptocurrencies is public. Its value is not based on any organizational protocols but by market forces. There are more than 1300 cryptocurrencies being traded currently.
Cryptocurrency Important Facts
Cryptocurrency enjoys a number of features so let’s look at some Cryptocurrency facts along the way.
Cryptocurrency funds are locked in a public key cryptography system, and coupling that with a Bitcoin address makes it as secure as a vault.
A user can have multiple Bitcoin addresses, not linked to any name or personal info. Addresses are usually of 30 characters.
Not controlled by a single authority. If one network shuts down, the other takes over.
Bitcoin users can charge some fees to process the transaction faster. The higher the fee, the more priority it attracts on the network with quicker processing time.
Transfer of Bitcoin happens within minutes as soon as the Bitcoin network processes it. It involves a global network of computers.
Since there is no physical form of the currency, Bitcoins are free from counterfeiting. There are no risks to the country’s economy if millions of Bitcoins are lost.
Not a miner, not the President of India, not even Satoshi Nakamoto can save your money in case transaction is done to a scammer.
- Ease of set-up
Downloading a Bitcoin software for free and start with setting up of a merchant account. You can set it up within minutes and start receiving or sending Bitcoins.
All cryptocurrencies control the supply of the token by a schedule written in the code. This means that the monetary supply of a cryptocurrency for any given moment in the future can be calculated today
All confirmed transactions can be viewed by everyone (personal details are hidden). Anyone can view the Bitcoin Blockchain. It is exempt from governments or any organization.
Can Cryptocurrency become legal in India?
This question has built up momentum since Arun Jaitley stated that the government would not be recognizing crypto as a legal coin or tender. But, idealists noted that the Finance Minister of India did not exactly ban the idea of cryptocurrency.
“The government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities.”
Financial experts and analysts are trying to figure out how the Blockchain technology be used for technological benefits. Recently there was news about India’s Income Tax Department issuing notices to nearly 1,00,000 cryptocurrency investors, suspecting them of concealing profits. The tax declaration deadline is approaching, and this brings out the question – How can cryptocurrency be taxed in India?
Some believe that SEBI (Securities and Exchange Board of India) are drawing up regulations on cryptocurrencies being used by regulators.
Only once RBI approves and recognizes cryptocurrency and Bitcoin as a legitimate digital currency, can I even think of introducing a ‘Bitcoin loan’ onto our roster. We provide online loans for travel, medical, second-hand vehicles and more based on your worthy credit score.
Another reason why ‘Bitcoin becomes legal in India’ deserves some more waiting is due to the developing trends in India. Demonetization was a time of chaos and unpreparedness. It was initiated for eliminating black money from India. Bitcoin, for all its worth, takes up a majority of the underground currency market. This is a problem which the government needs to solve. It is not the ‘When’ but the ‘How’ that can allow Cryptocurrency to become legal in India.
Non-regulatory use of Cryptocurrency in India could lead to an imbalance in the digital economy scene. The whole world is already embracing Bitcoin and Cryptocurrency, and with India, not game for it yet could result in hampering of our financial resources from the economy. There is news of Mobikwik and Reliance Jio considering adopting of Cryptocurrency, but these are rumors as of now.
What hits Cryptocurrency most is its state as an entity. Neither is it a normal form of currency nor is it a fiat currency (government approved). To be eligible for transactions, a fiat currency must possess a unit of account, a store of value and a medium of exchange. Despite this, the world continues to embrace it.
- Canadian KFC outlets began a limited period offer to accept Bitcoins worth 20 Canadian Dollars.
- South Korea sees a trade of close to 40% premium over other world markets for Cryptocurrency. This after it overturned its ban on Bitcoin.
- Japan’s Yamada Denki has already started accepting Bitcoin payments
- Sberbank from Russia plans to bypass regulations set by the government and offer trading via cryptocurrency to its customers overseas
Many analysts in India believe that the reported Rs. 12,000 Crore scam orchestrated by Nirav Modi could have been averted if Blockchain was used. Blockchain eliminates the risk of data being held at one place and works through user consensus. A joint initiative to drive Blockchain is being undertaken by State Bank of India and ICICI Bank.
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