What is cryptocurrency? Understand Pros and Cons of Crypto Investments

In the 21st century, cryptocurrencies have emerged as one of the biggest innovations in the world of digital currencies. Cryptocurrency differs from traditional payment methods, which central governments or banks typically control.
Cryptocurrency, commonly referred to as crypto, is a digital/virtual form of currency that secures every transaction through cryptography and is based on blockchain technology. Government regulations do not hinder cryptocurrency transactions. Understanding cryptocurrencies provides you with valuable guidance for investing in a new asset class and navigating the emerging world of digital payment systems.
In this article, we will explain everything about cryptocurrency, including what it is, how it works, its different types, advantages, and disadvantages. It is helpful to understand crypto in depth.

What is Cryptocurrency?

Cryptocurrency is a type of digital/virtual currency that is secured by a cryptographic system. Cryptocurrency is a decentralized medium of exchange where cryptography is used to verify and facilitate each transaction. The cryptography system makes cryptocurrencies nearly impossible to counterfeit or double-spend.

Most cryptocurrencies use blockchain technology. Cryptocurrencies are not regulated or monitored by governments or any authority, whereas our traditional payment system is regulated by the central government or banks.

Cryptocurrencies do not exist in physical form; Rather, cryptocurrencies are decentralized digital assets based on a network that is distributed among a large number of computers. It is cryptographically secured and based on blockchain technology. They enable secure online payments without the use or intervention of a third-party intermediary. Cryptocurrencies have a shared public ledger in which all transactions within the network are recorded. Therefore, everyone on the network can see every transaction and the balance of other wallets.

How and why were cryptocurrencies created?

Cryptocurrency is a digital currency secured by cryptography. The concept of cryptography became popular during the technology boom of the 1990s. In 1983, an American cryptographer named David Lee Chaum first used cryptography to create a type of cryptographic electronic currency called DigiCash. Cryptography is a technology used to create a parallel line of currency that is beyond the reach of any regime or central authority. Many programmers and organizations use this technology to create virtual currency.

Our centralized banking system is controlled by central banks or governments, or powerful, influential people who control our money. They keep the details of our every transaction in their data centers or computers all the time.

Due to banks’ indiscriminate mortgage lending to anyone, at any interest rate, and without any research, one of America’s largest banks, Lehman Brothers Bank, completely collapsed in 2008. The 2008 global financial crisis is considered the worst economic crisis since the Great Depression. This entire crisis was caused by our failed centralized banking system.

Following the global financial crisis, in January 2009, Satoshi Nakamoto, an individual programmer or a group of programmers, introduced the first cryptocurrency called Bitcoin: a peer-to-peer electronic cash system. This is the world’s first cryptocurrency. Satoshi Nakamoto created Bitcoin with a lot of thought and with a solution to financial problems.

How does cryptocurrency work?

The technology behind cryptocurrencies is blockchain technology; This means that cryptocurrencies run on blockchain technology. Cryptocurrencies run on a distributed public ledger. The details of each transaction are recorded in the public ledger. This means that everyone on the network can see every transaction (sender or recipient’s wallet addresses, balances).

In blockchain technology like the Bitcoin network, each transaction includes the wallet addresses or public keys of the parties involved – the sender and the recipient – and the amount of that transaction.
One security measure against fraud in cryptocurrencies is that the sender must confirm the transaction with their private key. After confirmation, the transaction appears in the public ledger or database.

Only crypto miners are authorized to confirm transactions within the cryptocurrency network. At the time of a transaction, crypto miners must solve a difficult cryptographic puzzle to confirm a specific transaction. Miners receive rewards for their services in the form of units of cryptocurrency. Crypto mining involves solving complex mathematical problems using computer power to confirm transactions that generate coins.

After solving the mathematical puzzle, when miners confirm a transaction, they broadcast it to the network, and every node in it automatically updates its ledger. Moreover, once the miner confirms a particular transaction, it becomes irreversible and unchangeable.
Anyone can buy cryptocurrencies from registered brokers, then store and spend them using a cryptographic wallet.

Types of Cryptocurrency:

There are so many cryptocurrencies on the market that it’s important to understand their types. Knowing the purpose of the coin you’re looking at can help you decide if it’s worth investing in. Here are just 3 of the major types of cryptocurrencies that currently exist.

Bitcoin: According to Satoshi Nakamoto, Bitcoin is a peer-to-peer electronic cash system. Bitcoin was introduced as the first cryptocurrency. It is a digital payment system based on cryptography and secured by blockchain technology. Now, in July 2025, Bitcoin will have a market capitalization of $2.37 trillion and a share of the crypto market of 60.9%.

Only 21 million bitcoins can be in circulation at any given time. No one can create another Bitcoin.

Altcoins: In simple terms, altcoins mean “alternative coins” to Bitcoin. Bitcoin was developed for digital payments, but altcoins are developed for a variety of reasons. Some aim to improve the limitations of Bitcoin, while some altcoins provide a platform where institutions or professionals can create their own apps based on blockchain technology.
For example, Litecoin was designed to facilitate faster transactions than Bitcoin, and Ripple (XRP) focused on revolutionizing cross-border banking transactions. Altcoins like Ethereum introduced groundbreaking concepts like smart contracts, which allow for programmable, automated transactions and the development of decentralized applications.

Tokens: Typically, these crypto tokens are products of altcoins like Ethereum, Factom, Litecoin, NEO, etc. These tokens do not have a separate blockchain technology, but instead run on a decentralized app built by the altcoin. These tokens have a very low value compared to other types of cryptocurrencies, as they can only be used for purchases from such decentralized apps or dApps.

Advantages or disadvantages of cryptocurrency:

Cryptocurrencies were introduced to revolutionize the financial structure. Cryptocurrency is designed in such a way that it cannot be controlled by any government or influential person, as they control fiat currency. Cryptocurrencies are gaining attention around the world. From the first coin, Bitcoin, launched in 2009 to today, i.e., 2025, there are more than 18 million cryptocurrencies available worldwide. Each cryptocurrency is designed to serve different projects and purposes.

There are many differences between the theoretical idea of a decentralized system with cryptocurrencies and its practical implementation in the world. Cryptocurrencies also have inherent risks and disadvantages that we need to carefully consider.

Advantages of Cryptocurrencies:

Decentralization: Cryptocurrencies represent the decentralized nature of currency payments, unlike centralized banking and monetary systems, which are controlled only by central banks and governments. Cryptocurrencies operate independently on a peer-to-peer network. This gives individuals more control over their assets, and cryptocurrencies eliminate the need for trust and monitoring of transactions by a central authority between two intermediaries.

Speed: Cryptocurrency payments can be made easily from one party to another without any regulatory interference. These payments can be faster than any standard money transfer. Since cryptocurrencies run on decentralized systems, no physical work is required. This is why crypto payments operate faster than any centralized payment system.

Time and cost-efficiency: Convert a fiat currency to Bitcoin (or any other cryptocurrency), allowing us to send and receive cryptocurrencies from anywhere in the world, in very little time and at a very nominal cost, without any third-party intervention. On the other hand, payments made through banks are very time-consuming and expensive.

Privacy and Security: Cryptocurrencies are secured by cryptography and run on blockchain technology. Here, the transfer of crypto is completely secured by public keys and private keys. At the time of any payment, we need private keys to clear the payment. Once a transaction is complete, it is recorded in the public ledger, which can be viewed by anyone. Here, only the wallet numbers of the transacting parties are visible.

Asset Class: Cryptocurrencies are a new, highly risky, and volatile asset class. This asset class comes with a lot of risk but can also offer very good returns. Many cryptocurrencies have created immense wealth for investors, such as Bitcoin, Ethereum, Pepe, and Shiba Inu, among others. You shouldn’t invest all your money here. You should invest only a small portion of your portfolio here, which you can afford to lose.

If you want to learn about types of investing in India-learn from here

Disadvantages of Cryptocurrency:

Privacy: When someone buys or sells cryptocurrencies or makes payments via crypto, the details of these transactions are stored in a public ledger. Anyone connected to the network can view the details of these transactions. This opens up the possibility for governments, authorities, and others to monitor financial transactions.

Illegal activities: After the transaction, the details of both parties are recorded in the public ledger as wallet addresses, i.e., where the transaction took place and from where. There is no information about who made the transaction or from where. This means there is no information about the individuals; The only information is about the wallet, that the coin moved from one wallet to another.

This is why crypto transactions are often used in illegal activities because it is blockchain-based, and transactions made here cannot be traced.

User Risk: In our traditional banking system, if we accidentally make a wrong transaction, we can get that money back with the help of the bank, but once we accidentally transact our crypto to the wrong place, we will never get that coin back. Transactions are irreversible here.

Lack of regulation: Cryptocurrency has also become a favorite of hackers who use it for ransomware activities. Cryptocurrencies operate outside the control of centralized financial institutions, so they often fall into a legally gray area. Governments around the world are still struggling to establish a coherent regulatory framework. No exchanges recognize cryptocurrencies yet, and without exchange rules and regulations, hackers can steal millions of dollars from investors by hacking crypto broker apps. There have been many cases of such hacking in which investors have lost millions of dollars.

How to Store Cryptocurrency?

You can keep your purchased cryptocurrency units in both online (software) and offline (hardware) wallets. Both wallets are secured by public keys. You will need the private keys to complete the payment.
Software (Online) Wallets: Online wallets primarily serve the purpose of regular transactions. These applications can be installed on devices such as desktops, mobile devices, etc., to store private and public keys and interact with the blockchain to send/receive cryptocurrencies. Examples – MetaMask, Exodus, Jaxx.
Hardware (offline) wallets: Offline or cold wallets are physical devices, such as USB drives, used to store cryptocurrencies offline for security. Private keys remain isolated from internet connectivity, reducing the risk of hacking. Example – Ledger.

Is Cryptocurrency considered a Safe Investment?

Cryptocurrencies are considered one of the most revolutionary asset classes. Over the past decade, Bitcoin and Ethereum have delivered the highest returns and have outperformed many traditional assets like gold, stocks, or real estate in certain periods. But cryptocurrencies are considered volatile investments due to high volatility, lack of regulation, scams, hacking, and bugs, which can harm investors. Let’s discuss some of the market risks of speculative asset classes. Every crypto investor should be aware of the following risks:

Price volatility: Crypto markets are highly volatile, with crypto prices fluctuating 10%-20% or more in a single day, or sometimes within an hour. Coin prices fluctuate due to sudden whale entry or exit, social media rumors about scams and hacking, or demand and supply of the coin. Therefore, it is a highly volatile and unpredictable investment class. For many conservative investors or retirees who rely on stable returns, this level of uncertainty causes a high level of risk and anxiety.

Refund risk: Cryptocurrency payments are not like our traditional payment systems; Once a cryptocurrency transaction is sent, there is no way to reverse or cancel it. Once you lose your private key or wallet address, you also lose your crypto.

Regulatory Uncertainty: The regulatory risks of cryptocurrency investments are still unclear in many countries. Government policies can change overnight – as seen in countries like India, China, and the US, where regulations have fluctuated between open encouragement and outright bans. Sudden regulatory tightening could make it difficult to sell cryptocurrencies or cause a sharp drop in market prices.

Personal security: Cryptocurrencies are based on strong encryption, making blockchain transactions extremely secure. If investors do not store or manage their private keys, and if they lose their private keys, it means they have lost their cryptocurrency forever. Similarly, if investors fall prey to phishing scams, use fake apps, or get caught up in hacked exchanges, they can lose their entire portfolio. The lack of any centralized authority means there is no customer service, no refunds, and no insurance, making it very difficult for inexperienced users.

Market Manipulation: Market manipulation is also seen as a major problem in cryptocurrency investing. In the crypto market, influential people, large institutions, and big companies usually buy a specific coin, and then increase demand for it by promoting it among retail investors, and then later sell it and make a profit. This phenomenon is called pump and dump. Retail investors are the ones who suffer losses.

Due to so many risks, the prices of cryptocurrencies constantly rise and fall, which is why it is considered a speculative investment among investors. But we must remember that its use is also designed for the future. The crypto market has grown to a total of $3.9 trillion in just 15 years, much faster than any other asset class. Definitely invest in it. Now that crypto is legalized in 2025, invest a good portion of your portfolio in some good science.

The Future of Cryptocurrency:

As we know, cryptocurrency runs on blockchain technology, which is completely different from our traditional financial system. Cryptocurrencies operate without any regulatory body; Here, all transactions are recorded in a public ledger. As the technology continues to develop, banks, wealth management companies, and other organizations and countries are also moving towards using blockchain technology.

In the 2024 election, Donald Trump had said he would make the US a crypto hub and would buy Bitcoin; BlackRock, the world’s largest wealth management company, also holds a large number of Bitcoins. In countries like Dubai, crypto is now being used in the exchange of goods and services. Some countries mine Bitcoin, and some even invest in Bitcoin. The whole world is gradually adopting this technology.

Its success will depend on how society and governments embrace this revolutionary innovation. Its future depends on how the government takes it. If the whole world comes together and creates an exchange for it, makes rules and regulations for it so that there are no scams, and it remains active, we adopt its technological development and understand its market behavior well, then this technology will be very successful in the future, and we will move towards a new direction.

The Conclusion:

A cryptocurrency is a digital asset or virtual payment system secured by cryptography and based on blockchain technology. It represents a technological shift that is redefining the foundations of global finance. Bitcoin, created by Satoshi in 2009, was a great solution to our financial banking system. It was not like the traditional financial system; It is based on blockchain, which means transparency in transactions, easy receiving and sending payments from anywhere in the world, and no middlemen required.
Cryptocurrency is a new technology, so it is a very speculative asset class. Before investing in it, do a fundamental analysis, understand all the risks and benefits associated with it, and only then take an investment decision and invest only a part of your portfolio in it.