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Cryptocurrencies: the world beyond bitcoins

LiveMint logoLiveMint 21-06-2017 Vivina Vishwanathan

In the last couple of months, bitcoins have been in the headlines due to volatility in prices. For instance, on 4 May, bitcoin breached the Rs1 lakh mark; and on 24 May it breached Rs2 lakh mark. On 20 June, bitcoin was trading around Rs1.89 lakh. Experts attribute the rally to Japanese government’s move to legalize bitcoins and its acceptance by large e-commerce companies. Popular as it is, bitcoin is just one of the several cryptocurrencies around. According to Coinmarketcap.com, a website that tracks cryptocurrencies, on 20 June there were 757 cryptocurrencies. Bitcoins top the list, followed by ethereum and ripple.

Mint Money takes a look at some of the major cryptocurrencies in the world.

Bitcoin: It is one of the most popular cryptocurrencies today and currently ranks number one on Coinmarketcap.com. Bitcoin is created using encryption techniques. “Cryptocurrencies function by taking on the work that centralized institutions like banks and credit card companies do and replacing it by cryptography and game theory mechanics,” said Sandeep Goenka, co-founder, Zebpay, an app-enabled bitcoin exchange in India.

How does bitcoin work? “Its transaction records are not maintained by any single entity. They are maintained by miners who are distributed globally. Miners compete with each other to solve complex mathematical puzzles by using massive computation power. They also verify and record all the transactions. In return, they earn newly generated cryptocurrency tokens (bitcoins) and also transaction fees. Game theory mechanics ensure that if they cheat, they will lose the money they committed for using the computational power,” said Goenka.

Ethereum: This is slowly emerging as a competitor to bitcoin. “The main reason for ethereum to come into the picture is price surge in bitcoins. Small investors are not able to buy bitcoins after they touched Rs2 lakh. New investors who want to experiment with virtual currencies can’t buy bitcoins at the current price. However, they can take risks with ethereum, which is cheaper than bitcoins,” said Kamesh Mupparaju, founder, BTCXIndia, which is managed by Hyderabad-based S Capital Solutions Pvt. Ltd. Like bitcoins, ethereum is also mined. “The difference is that bitcoin is only a currency while ethereum functions as a token and can run any application in a decentralised ledger,” said Mupparaju. The price of ethereum has surged in the last 1 year. In 2016, it was around Rs600-700. Now it costs Rs27000-28000. 

Ripple or XRP: Unlike bitcoin and ethereum, no mining is involved in ripple. It is a pre-mined currency used for settlements. It provides real-time, on-demand liquidity for global payments and is based on an open source software anyone can use. For instance, if you are sending money in one currency and need to settle in another currency, ripple allows you to do the transaction without losing any conversion cost. “Ripple is available to trade in 12 countries around the world. Currently, it is primarily used for trading. But as digital asset exchanges with payment capabilities, XRPs can also function as a bridge asset for international payments,” said Miguel Vias, head of XRP Markets, Ripple.

Bitcoin, ethereum and ripple are just some of the cryptocurrencies that exist in the market. In India, you can buy and sell all the three top cryptocurrencies on exchanges such as Unocoin, Zebpay and BTCX India. For any transaction in these currencies, you need to do your Know Your Customers (KYC) verification—provide identity proofs, address proofs, photographs, and details of your Permanent Account Number and your bank account.

Cryptocurrency are not regulated in India. An inter-disciplinary committee set up by the government is examining the existing frameworks on virtual currencies. Mint Money doesn’t recommend investing in cryptocurrencies due the volatility in prices. Also, the basic investment rules apply here too—if you don’t understand a product, you should not invest in it.

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