Cryptocurrency-An Overview of Bitcoin and What Could be the Future of Money

Cryptocurrency came into vogue with the advent of Bitcoin in 2009. Conceptually, cryptocurrency is encrypted digital money that has been created to be used through the internet. There is no physical version of this money - it is driven by blockchain technology and is managed by peer-to-peer computer networks on free open-source software. This ensures that there is no middle agency to monitor, regulate or control it. These ‘currencies’ have not been recognised by any government or financial regulatory authority as valid legal tender, and only a few companies have started accepting them in exchange for products or services.

Bitcoin, abbreviated as BTC, is the oldest and one of the leading cryptocurrencies in the world. It operates under the principles of cryptocurrencies as decentralized digital money that can be traded like regular forex across cryptocurrency exchanges globally. BTC can also be purchased on peer-to-peer networks. Besides BTC, there are over 10,000 other cryptocurrencies such as Ethereum, Dogecoin, Tether, XRP, and Cardano; all of which have grown steadily in terms of valuation and popularity.

So far, there is no fixed regulation or governing authority managing and monitoring bitcoin trading, unlike physical currencies like the U. S. Dollar or the Euro. As a digital asset, bitcoin balances are kept on a public ledger and multiple users or buyers can access it with transparency.

How is a cryptocurrency like bitcoin traded?

Bitcoin is limited,and that is what makes it worth trading in order to acquire it. The limited quantity also creates the dynamics around its valuation. There are 21 million bitcoins and this number is sealed. Since bitcoin is digital, encrypted money, it can neither be inflated nor manipulated; and in this regard, it is extremely secure to deal with.

Bitcoin can be traded across dedicated online exchanges, also referred to as crypto exchange. All activities generally associated with the regular forex trading can be performed with bitcoin and other similar currencies.  One can buy and sell, send and receive, and store bitcoin without holding it using tools called public and private keys. The basic fundamental of trading is the same—buy low, sell high, and all individual risks remain intact with each trading decision. Some of the crypto exchanges are Coinbase, Binance, Huobi Global, Kraken, and KuCoin.

In order to trade bitcoin or invest in bitcoin, one has to follow a few simple steps. To begin, one can choose any of the multiple crypto exchanges and register themselves with required personal identification documents, a digital wallet, and initial capital in any of the acceptable traditional currencies. Depending on the capital, an investor can purchase bitcoins of the available value. It is not mandatory to buy an entire bitcoin; one can also opt for a fraction.

How does one store this digital asset?

Cryptocurrencies, being digital assets, are stored in a virtual wallet. Depending upon the features, these wallets could be provided by the exchanges. An investor can choose from two types of wallets: a “hot wallet” and a “cold wallet”.

A hot wallet is a storage tool operated mostly by a cryptoexchange. It could be an included feature automatically provided when an account is opened. These are convenient, being accessible through the internet or a software program. However, hot wallets are vulnerable to hackers and password thieves. Major hot wallets are a) Electrum, a computer software; and b) Mycelium, a mobile based app.

A cold wallet is based on a hardware piece that stores bitcoins. It is usually a portable device like a flash drive. The cold wallets have to be individually purchased and linked to the account. Cold wallets are regarded as much safer storage method for bitcoins and even though their costs could be up to USD100, they are the preferred options for an investor looking to trade large quantities. Most popular cold wallets include Trezor and Ledger Nano.

Q1. Complete the following sentence:

_________________ , the first of many, ushered in the concept of ________________ in the world.

A) Cryptocurrency, bitcoin

B) Bitcoin, cryptocurrency

C) bitcoin, digital encryption

D) None of the above

Q2. Read the following statement and choose from the options:

According to the article, cryptocurrency like bitcoin is managed using encryption.

A) True

B) False

C) Not found

D) Cannot say

Q3. What, according to the passage, determines the valuation of bitcoin?

A) Crypto exchanges

B) Huge number of buyers

C) Limited numbers in terms of availability

D) Makers

Q4. According to the passage, “So far, there is no fixed regulation or governing authority managing and monitoring bitcoin trading, unlike physical currencies like the U. S. Dollar or the Euro.”

Can we infer that BTC and all activities associated with it, such as trading and storing, are essentially illegal?

A) Yes

B) Partly yes

C) No

D) None of the above

Q5. Complete the following sentence:

Dogecoin and Ethereum are types of _____________

A) Cryptocurrency

B) Bitcoin

C) Cryptoexchange

D) Encryptions

Q6. Why, according to the passage, are BTC and other similar cryptocurrencies extremely secure to transact with?

A) Because they are uniquely encrypted

B) Because they are stored in public ledgers

C) Because they can not be manipulated

D) All the above

Q7. Which of these is not an example of a cryptoexchange?

Huobi Global, KuCoin, Coinbase, Kraken, Tether

A) Tether

B) Huobi Global

C) Coinbase

D) Kraken

Q8. Read the following sentence that appears in the passage:

These ‘currencies’ have not been recognised by any government or financial regulatory authority as valid legal tender, and only a few companies have started accepting them in exchange for products or services.

Which of the sentences among the options best expresses the essential information in the sentence?

A) Bitcoin cannot be used for shopping and is not valid.

B) Cryptocurrencies cannot be used to make ordinary purchases since they are not globally acceptable or valid.

C) Cryptocurrencies do not yet have regulatory authorisation and are not accepted by most businesses.

D) Cryptocurrencies are not currencies in ordinary sense and are useless for regular transactions.

Q9. Define a hot wallet.

A) A digital storage option for keeping bitcoin.

B) A software based storage option for cryptocurrency mostly offered by cryptoexchanges to registered customers.

C) An unsafe storage system for saving cryptocurrencies during and after trading.

D) A vault.

Q10. What is the theme of the passage?

A) To offer information about bitcoin and encourage trading in cryptocurrency.

B) To provide an idea about digital currencies using examples and technology input.

C) To give an overview about cryptocurrency and cryptoexchanges, highlighting basic activities such as trading and storing.

D) None of the above