All posts by ritefinance

Everything about personal finance. Financial Literacy Matters!

Where to Invest your money?

Lets look at a list of Investment available to you globally.

  1. Direct Equity (Stocks / Shares) – High risk Investment with greater return in long run and volatility in short, Equity today is one of the easiest to invest in terms of accessibility with just a few clicks you can own a piece of Tech giants like Amazon, Apple etc. (not suggesting/recommending). A good thing for a beginner to Invest when starting with Equity is to invest in broader market indices like Nifty, Sensex (in India) and VTI, S&P 500 in US. By Investing in S&P 500 you can own a piece of 500 of the significant publicly traded companies in US.
  2. Mutual Funds – A mutual fund is made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. But be aware of the Expense ratio and hidden fees, they can eat a big chunk of your portfolio in long run.
  3. Real Estate – Own a house and rent it, while you wait for the upside. Real Estate is the physical asset that you can own and feel unlike the Stocks. But you need to research before investing, and you may need to learn something called house hacking to start with, where in you own a Duplex and rent one portion while you continue to live in other. And if you like Stock Market and hate the extra work to put in for the physical asset you may be better of owning the REIT (real estate investment trust), a company that owns, operates, or finances income-generating real estate. Modeled like mutual funds, REITs pool the capital of numerous investors.
  4. Commodities – A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. For investors, commodities can be an important way to diversify their portfolio beyond traditional securities. Because the prices of commodities tend to move opposite to stocks, some investors rely on commodities during periods of market volatility. Commodities that are traded are typically sorted into four broad categories: metal, energy, livestock, and agricultural. When it comes to Commodity it is good to own a small portion of your portfolio in precious Yellow Metal – Gold to hedge against the paper money.
  5. Bonds – Bond is a debt security, borrower issue bonds to raise money from investors willing to lend for a particular period of time. Bond is a fixed Income Investments. There are wide variety of Bonds such as Agencies, Treasuries, Corporate, Municipal etc. A T-Bond, Treasury Bonds issue by U.S. Federal Government is considered to be safest of all, regarded as risk-free since they are backed by the U.S. government’s ability to tax its citizens.

Whatever you Invest in remember to diversify well, and also remember no matter what there will be a time where your investments may lose 50-70% of its value. The key to avoid huge downside especially with volatile investment like Stocks is Asset Allocation. Diversify not just across different investments but also within one investment.

Further to the list above, below are some great articles published by us to refer before Investment-

# 7 Ways to lose money in stocks

# Caution! Dalal Street Ahead

# Invest your Money

Also, a great Book that I can recommend anytime to dive deep into Investments for an ordinary man and achieve financial freedom is MONEY Master the Game.

Thank you for reading. Have a great weekend. Let us know in comments below, what is your favorite go to Investment.

7 ways to lose money in stocks

Hello Riters, Hope you are doing great. We are back to help you do the personal finance. Today lets take you through some don’ts of a Investor. Lets discuss 7 ways to lose money in stock market and how to avoid them.

As Benjamin Graham, once said, “In the short run, the market is like a voting machine. But in the long run, the market is like a weighing machine.”

Read more on Investing –

*Mistakes to avoid while Investing

*5 To Dos of Investing

*What is a Stock Market Bubble?

*How to earn more money, Hustle?

Happy Reading 🙂 Come back for more, follow us on Instagram for Financial News @ritefinance

Are we Saving it?

Hello Riters, hope you are having a good time, enjoying yourself and making loads of Money. No? Yes? well regardless, these tips will help you grow your wealth. So lets dive in! (Opinion Alert – most of these below are my personal opinion)

5 Tips to Save your Money

  1. Automate your Savings – yes! you need to Automate this. As they say out of sight is out of mind, every first of month or whenever your Income gets credited Automate a recurring deposit to another account that you can’t / won’t access for your expenses. Even if its just 10% of your Income, over time it can grow to a substantial amount which you can later Invest. Remember Save first spend later.
  2. Don’t Shop when you are hungry – Please avoid running to a mart or your favorite restaurant at the very moment you are hungry. Plan it well before or else your mind will be fogged by that juicy extra Guacamole or that Cheese round the corner.
  3. Get your Caffeine fix at home – You may need to avoid daily Chai Point Tea or that Starbucks Coffee as a recurring soul not so satiating. Instead buy a Coffee Maker (Indians out there just get that pan) and have some mouth watering Dark Roast Ethiopian Coffee, and you can get the cost down from few dollars to few cents (150 Rupees to just 20 rupees).
  4. 30 Day Rule – This one is controversial, good to have, not exactly saver but a thumb rule to save on expensive expenditures. Whenever you want to make a big purchase like that Gucci Scarf , sleep on it not one day but full month, yes, unless its peanuts money for you, wait till that luxury is yours, so when you buy it you know you really need it!
  5. Cut those Credit Cards – Stop those Credit bills from drowning you in debt. Only own the card if you can repay it! Yes, if you can’t pay on time, ditch it! This one really depends if you sure can repay within a month go ahead and avail those extra points and benefits, but if you can’t destroy, burn it to grounds or just put it away from your sight.
credit cards

Thank you for reading, if you are already following Two or more of these tips do let us know how is it going. Keep Learning.

Get Rich QUICK!

Spoiler Alert – 99.99% of Get Rich Quick schemes sold in Market are Financial Fraud!

Welcome Riters, today will discuss what are ‘Get Rich Quick’ Schemes, the truth behind them and why/how to avoid them. Lets dive in.

Pyramid Scheme

Pyramid Scheme is a business model where you recruit people in return of a future promise of wealth creation via promise of payments if you enroll others into the scheme.

In layman terms, it is a sketchy fraudulent business model that works on commissions received by new recruits you recruit or your recruits recruit.

You pay a upfront cost often misguided by the person selling you this scheme in the name of get rich quick! That said mostly pyramid schemes rely on recruitment fees, but sometime they will even sell you tangible goods and services (which of course are not worth the money) to hide the underlying pyramid structure. Often they have a binary structure where in one person has to recruit two others which in turn recruit two others and the list goes on. As long as the Pyramid base is wide the stability remains

Another terms which we often hear is MLM (Multi-Level Marketing).

Multi-Level Marketing, also called Pyramid Selling or Network Marketing

MLM is often a legal business practice, that unlike traditional pyramid scheme involves actual sale of goods & services. Nevertheless their main motto remains hiring new recruits and getting their money. They will at times sell you educational courses and no-value products at high cost, and in turn make you / motivate you to sell them to the new recruits! These schemes work primarily on commission system.

Now other similar financial fraud is referred to as Ponzi Scheme.

Ponzi Scheme

Ponzi Scheme, coined after Charles Ponzi in 1919, refers to as ‘Robbing Peter to pay Paul’, Ponzi Schemes rely on new investors to pay old investors. A certain of people buy into the idea, and Invest, when they sold this to others (new investors) they get to keep the return paying a certain fee to the intermediator a third party.

In a sense, they are similar to Pyramid structure, here instead of recruits you are calling them the Investors and the ideology behind this financial fraud is that of Robbing one to pay other!

Remember the underlying Motto of all these schemes is to steal your money to satiate the greed up the ladder!

News Alert

  • Anubhav teak plantation in India in 1998 was a Ponzi scheme defrauding the depositors of nearly 400 Crore rupees.
  • Bernie Madoff’s (American Financer) Ponzi scheme ran for decades defrauding thousands of investors tens of billions of dollars. Finally in 2009 Madoff was sentenced to 150 years in prison and forced to forfeit $170 billion.Read more about it here

Why say No to Get Rich Quick Fraud Schemes?

  1. They won’t even get you Rich forget about fast.
  2. They are unethical, and at times operate in a legal loophole.
  3. They rip many of their life savings.
    • Based on True Story – Imagine a 25 year old Kiran from an Indian village get convinced by a few friends to invest (as they say it) few lakhs which he arranged selling a piece of land that he inherited, and unable to further recruit others, in turn he convince his family members who end up selling more of their livelihood, their land, finally losing all they had in pursuit of a secure glaring bright future which was never ever possible by the Scheme!
  4. They waste you time! Yes, as you know Time is more precious than Money, lost money can be made again but lost time never comes back.
  5. They can rip you off your livelihood, even if you don’t sell anything like our imaginary friend Kiran these schemes nevertheless instill a hatred in your heart for your job! Now you may never ever gain the promotion you would have easily got at first place, and you may never ever be happy with your Job and that means your future can be bleak.

Now these schemes do have some benefits but the potential risk and damage outweighs these benefits by large (for the sake of discussion lets discuss them).

Benefit1.  You learn to sell, often network marketing if not anything else teaches you how to sell yourself! Which is a very good skill to learn (You don’t need to be involved in fraud to learn this and should rather pursuit it by other means). 2. They teach you about Investment, yes if you are into a Ponzi scheme and you have lost your money, you now know how to not invest, nevertheless often the cost of learning is too high and you may never learn unless you decide to quit!

How to avoid buying into such Frauds?

  1. Never Invest in things you don’t understand. Often times these schemes are sold by using complicated terms and indirect ways, and psychology against you.
  2. Always do your due diligence, and don’t just listen to a random friend.
  3. Don’t blindly trust people with your money (or anything for that matter).
  4. Lastly if someone says they will make you rich quick, run away from there.

To read more about investing – click here!

Opinion alert

With heavy heart and tears in my eyes, I feel very bad to tell you NO GET RICH QUICK SCHEME EXISTS. Yes, But I am in fact happy about this fact. The fact is you need to use knowledge, create value, sell value or your time in return of the Money! Once you have, as Tony Robbins called it critical mass of Money, the money will work to get you more money throughout your life. And that is how my friends, Financial Freedom is made! Don’t ever buy into anything that is being sold to you in the name of ‘Get Rich Quick’, more than 90% of the times they will end up draining your wealth and even if you end up getting more return than you invested or wasted in this case, you will not be wealthy. Wealth comes those who knows how to manage their money i.e. why the odds of you going bankrupt a year after winning the lottery (whose odds are itself very low) is pretty high.

Thank you for reading, follow us for more, and if you gain anything from this do share with your friends!  Keep Hustling, Keep Learning & Keep Investing!

Like a Boss

Money is a good servant, but a terrible master!

Hello Riters, welcome back, how is your holiday going? Are you learning that new skill or upgrading yourself to be better prepared for the days ahead or just sipping that Mojito alongside that private beach? Whatever you are doing, below are the principles that if used correctly will teach you how to close the deals, negotiate better terms, grow business, be successful as a salesman & as a leader, giving you exponential return, and all it take is 5 minutes to read.

The Principles are from ‘Dale Carnegie’ book titled ‘How to Win Friends and Influence People’. Some of these principles have helped me in my personal journey and I want to share the same with you. I have distilled most of them, divided into three categories (self-made), and tried to explain the principles in my own words (not necessarily the same order), nevertheless the book contains in-depth explanation of all the principles, and I would highly recommend you to have a copy of the book to refer to (link to book).

Win People-

  • Don’t criticise, condemn or complain about people. It is seriously just a waste of time. 
  • Give Honest and Sincere Appreciation back to people wherever possible.
  • The world is full of people who want to grab your attention, Be the one who tries unselfishly to serve others. Arouse in other person an eager want by showcasing how you can help them be it via service, a product or just a talk.
  • Become genuinely interested in other person, encourage them to talk and be an active listener. Make other person feel important and do it genuinely.
  • While negotiating or making a sales pitch talk in terms of other person’s interest.
  • Always wear a smile in your face, and try remember the other person name (make sure not to misspell the name).
  • Avoid unnecessary Arguments. (Especially if it is with your Partner 😉)
  • Show respect for other person’s opinion. Never directly say ‘you’re wrong’ (especially in a professional setting).
  • Try genuinely to see something from other person’s view. Be Sympathetic with their idea.
  • When you are right try to win people gently and tactfully to your thinking, but when you are wrong admit it quickly with all enthusiasm.

Be the Businessman-

  • Get the other person to say ‘Yes, Yes’. A person is more likely to agree to your suggestion if you get them saying yes & yes. If you want to get the deal close, don’t start with a ‘No’. It is difficult to convert a No to Yes, so get them to your liking and then suggest something.
  • Let the person feel that the idea is his or hers. Often times we see the salesman next door pushing a product to us, enlisting all the features of it, but we ignore. We won’t buy it unless we feel we are in control of the decision! The same applies on the other side, if you are selling something make the other person feel that the idea is his or hers to buy, and you are just helping them make the choice.
  • Dramatize your ideas. Yes!, As Seth Godin Says “All Marketers Tell Stories”. Make a Story around your product or service try to sell the story rather than the product, a hope, a value, a vision.  The truth has to be made Vivid and Interesting; you have to put the emotions at work.

Like a Leader –

  • To Motivate someone to do task, if no appreciation works, try throw down a challenge. Challenge your Employees to sell that next big thing, or your kids to wake up early (this one is difficult :-p). Nevertheless, Challenge motivates people to achieve bigger things.
  • Always begin with a praise and honest appreciation, even if you are to tell someone their shortcomings. Most People will listen to the full feedback once you make genuine effort to see the good side of their work or effort.
  • Call attention to people mistakes ‘indirectly’. Never directly say you are Wrong, instead tell them scenario where things would have been better handled.
  • If you and your team had made a mistake, first point out your mistake and then criticize others.
  • Don’t Order, Nobody likes to take Orders. Instead Suggest your Employees by Asking Questions. Asking questions can also fuel their Creativity and you may not know about better solutions that can come up along the way. For example – if a Customer is not satisfied with your service, maybe call your team and ask ‘How do you think we can provide better service to xyz?, team’
  • Praise the slightest improvement and be lavish in your praise.
  • Make other person happy about doing the thing you suggest. Maybe Incentivise your Employee, give them a portion of the benefit.

Remember no one grows alone. Take care of People around you, and they will in turn reciprocate. Be it your Partner, or Employee, they deserved to be praised and feel valued! The principles listed above will not only help you in your Professional, but also in your Personal Journey.

Let us know in comments below, what principles you think will help you in your personal Journey!

Thank you for Reading! Follow us for more. #MakethatChange

2020, Is ‘Recession’ the Economic Doomsday?

Coronavirus plunges eurozone economy into historic recession

France sinks deeper into recession, with 14% GDP hit in 2Q

The U.S. is officially in a recession. Will it actually become a depression?

With these news making into the front, its time we look at What is Recession?, a Depression?, and what can we do about it?

Welcome to riteFinance, this is your host Ritesh and today we are gonna unveil this curtain of fear!

A Recession is a slowdown in economic activities for at least two quarters. Since the economy is in contraction during a recession, so a GDP, Corporate profits and Employments go down.

So what causes a Recession? A fall in consumer confidence and spending referred to as a demand shock, causes a Recession. And what causes a fall in Spending?, well there are multiple factors like the 2008 financial crisis was caused by the Real Estate Bubble Burst causing a Recession, and the current one is caused partially by Lockdowns imposed by economies to prevent the spread of COVID.

Economies all the time goes through a Boom and a Bust cycle, a high rate of growth followed by slowness. These Bust periods are what is referred to as Recession and it can have one or other factor. Recessions are caused usually by irrational exuberance and soar in asset prices during the economic boom when people become so irrational that they think Economy will never reset again. Now, it doesn’t mean Recessions are good, Credit become difficult, Investors lose money, consumer cut spending, a company cut job etc. And if left uncontrolled a Recession can lead to a Depression.

The Economy

A Depression is a severe economic downturn which lasts for years (not months or quarters), and its effect can last up to a decade! Currency devaluation, price deflation and Bank failures can occur during a depression.

While since 1984, world economy is hit by 33 Recessions, the depression we know of is only ‘The Great Depression’ of 1929, which lasted for around 3 years.

Is 2020 Recession the result of Covid?

Well to say so, will only be partially correct. Covid acted like a needle in already inflated bubble. Recessions are not caused by a single event. Rise in corporate debt, economic slow down of 2019, China-US trade war and Brexit were some factors that led to the build up resulting in the current recession.  

With two quarters down, it is sure we are in a Recession. Question remains however In 2020, Are we heading for a Depression?

To answer, we don’t know, no one knows for sure! But no indicator is currently pointing towards a Depression, Economic revival is the priority of many states, focus on innovation and vaccine to reduce if not eliminate COVID is under way. That said, it is likely we will see more costly adjustments, certain setbacks along the way, but a economic revival even though slow will be underway soon in 2021. Will it be a V shape recovery (a steep decline and quick revival)? I think definitely not, it doesn’t look so, but a longer U shape recovery is likely, the Great recession of 2008 which lasted for around 19 months saw a U shape recovery.

Current State of our Economy
State of the Economy

With all this Negativity around, is there a light at the end of the tunnel?

The short answer is Yes!, At least for some.

  • Some Business thrive – Grocery stores, Bankruptcy attorneys, Bars, Maintenance services are usually the one that survive a recession. Definitely this depends on the kind of recession for example Bars which usually thrive in recession as the Binge drinking increases will likely be not in a good shape during Covid given the current health emergency and the government guidelines, also another example can be of Online Retail Marketplace like Amazon that are likely to thrive in current crisis, in-fact Amazon has added more jobs, additional 1,75,000 employees during this crisis .
  • Efficiency Increases – Inefficient Businesses and the one with on-going difficulties are the first to go Bankrupt during a recession. While a Business that can streamline itself, find alternatives and reduce its costs survives easily.  

On an Individual or Consumer level –

  • Change in Mindset – Recession forces you to reflect back on your expenses, cut some unwanted expenditures, look for alternatives, streamline personal finances, and set up an emergency fund, making you more efficient.
  • Crisis as an Opportunity – Every crisis comes with an Opportunity, that is why it is believed more Millionaires are made in crisis than any other time. While it is a harsh reality Recession can create more income inequality due Govt. policies, printing of more money, and can result in inflation, Nevertheless it gives you as an investor to buy some big firms (I mean a piece of them – stocks) in big discounts. Only if you think like a Minority and do your due diligence as an Investor.  We have a few resources to get you started and more coming up soon (watch out for this space).

Link to Resources for the Minority

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

– Warren Buffett (Legendary Investor)

News UpdateGDP Decline in Second Quarter : Spain 18.2%, France 14%, Germany 10%, United States 32.9% (worst economic contraction)

Keep Learning, Keep Investing! Thank you Readers.

Where is my Money?

A huge guy with a elite blue suit walks out of his rolls royce and hand over a brief case full of cash. Here Santa, here is your Money, go fund the Banta Co. Cheers!

If only Businesses used to work that way!

Welcome back Riters, today we will discuss how Businesses raise money and whats in it for you as a consumer. So lets dive in.

Every Business comes with a cost. Business need money to generate money, and there are four major ways a Business can raise capital –

  1. Early Stage Investors or Seed Money – This is usually when a Business is just starting up, and the founders may put in their money or may reach out to venture capital for investment.
  2. Profit as a source of financial capital – If firms are earning, they may chose to reinvest some of their profit back.
  3. Borrowing – Firms may choose to borrow money from Banks, that they can then invest back into the Business. This can also be referred to as debt financing. While debt is easy, it puts a additional burden to pay off interests.
  4. Stocks– This is a way by which a company can issue shares, and in turn get the public money to invest back into the Business. This can be referred to as equity financing. While this may sound attractive but going public may often means a lot of additional work that goes into financial reporting, where in you need to announce your earnings to the public and file them. If not done correctly it can also result in a company downfall, and eventual demise.

Oftentimes a company will use a mix of both debt and equity to finance their Business. And the best mix of debt & equity referred to as an optimal capital structure of firm helps maximize a company’s market value and minimize its cost. Often debt/equity ratio is something that a potential investor looks at.  

Lets further discuss how do the company raise capital via stocks.

IPOInitial Public Offering is the way by which a privately held company goes public and get listed on Stock Exchange. Think of Exchange as a place where Stocks (a piece of company) are sold & bought, so that you public get to be the owners! Owners, not in a real sense though you don’t get to take or make any decision as such, but you do get to keep a part of profit or loss.  

Now, as a consumer, you just don’t need to sell the shares/stocks to encash the profit, Some Companies also offer a regular payment a part of their earnings as ‘dividends’.  And remember the golden rule of Investment – Invest only in things you understand & do your own due diligence.

Now, if your Car runs out of fuel, you go to a petrol pump nearby and pour in some gas! Same way if a Company feels it needs more fuel aka more money to run, it may go back to you the public and ask for it, via FPO.

FPO – referred to as Further Public Offer or a Follow-on Public Offer is a process by which a already listed company issues new shares to the existing shareholders or the new investors.

FPO is used by companies to diversify their equity base with a aim to inflow subsequent public investment. FPO is comparatively less riskier, more predictable, and has a profit lower than IPO

The issue of shares IPO, FPO, private equity or debt instrument is regulated by SEBI (Securities and Exchange Board of India) in India.

There are two types of FPO:

  • Dilutive FPO – when the new offer of shares actually increases the outstanding shares of company. Such FPO is undertaken to fund the expansion activities or pay off some debts like the current Yes Bank FPO.
  • Non-Dilutive FPO– This one provides no additional shares or diversify the equity. This is when company’s founders, the board of directors, or other large shareholders sell their privately held shares on the open market.

Tata Steel Ltd, Engineers India Ltd, Power Grid Corporation of India, Power Finance Corporation Ltd, and NTPC Ltd are some of the successful FPOs in the past. The success of any IPO or FPO, depends on various factors like pedigree of the company, its promoters, earning capacity, potential and the Sentiment among the Market.

Each type of funding has its pros and cons, not knowing how to invest the money you earned or raised whether for a consumer or a business can make a whole difference between expansion or fall, growth or decline.

Thank you for reading, look out this space for more!

Am I Dumber than She thinks?

Am I? I don’t know (confused), Are you?

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.”

-Will Rogers

Hello Riters, Welcome to riteFinance, this is your host Ritesh and today lets discuss about-

Five Dumb ways to spend your Money

  1. Gambling, Believe it or not an average American spend $1000 a year on Lottery, with a odd of winning 1 in 14 millions, i.e. you are 20 times more likely to be struck by a lightening (thunder roars in far), and even if you win the Lottery you are more likely to be broke the next year than to be wealthy. Gambling in any form is a total waste of money, with slot machines and equipment designed in favor of Casinos to drill a hole in your Pocket! Here is link to an interesting read on Psychology behind Casino   
  2. Things you buy to impress them! Yes, that Gucci Scarf or the blue Jaguar, all the liabilities you take just to impress the girl or guy next door can drill a deep hole in your pocket and all your future cash flow may flow down that banking stream. So think before next time you go on a Shopping spree, ask yourself can I really afford it?, will this serve a purpose?, is there a way I can be happy without it? Do I really need it or its just a show-off?  (squirm face)  
  3. Things you buy to destroy health, yinkeesss, what did I say?, yes you heard it right, things like drugs, excessive junk snacks to munch on, or too much alcohol. This things not just have a recurring cost due to their addiction capability but also a cost far beyond your imagination, a cost that no money can pay for.
  4. Fees that Bank Charges: Overdraft charge, Bank Account Maintenance charges, your Card fees or that interest they charge you on Credit Card, even the money that’s deducted when you used your xyz card on abc ATM! To top it all, Bank also has a unique advantage of deducting cash directly from your account. So next time you may like to read your bank statement more carefully or maybe make a call & ask your banker. To know more on how to avoid some of these fees, check out the article here by lendup.com.
  5. In-App Purchases; yes, the skin you bought just to show-off in the virtual world or the extra life in your favorite game, even if it is in 50% discount (which is obviously a fake number to put on), may not be worth your Money (and your time). In most cases put away your phone for few minutes or watch an Ad and you will get an auto renewal of life totally free of cost. Also, the more you spend, the more likely it becomes for you to spend again, so it not only have a present but also the future cost attached to it.

Thank you for reading, let us know in comments below if you don’t do any of the above mentioned Dumb Expenses, or if you have one of yours own. Follow for more, #KeepLearning #Money

Is Bitcoin the new Oil? -A beginners guide to Cryptocurrency!

Hello Riters, Buckle-up your seat belts, today we are going on a Crypto Ride down that hill.

We will discuss the thing that Bankers hate – ‘Cryptocurrencies’!, What is it?, How can they be bought? Issues, types, the likely Future and finally about a coin of Shiba Inu dog. So lets dive in.

To understand Crypto let us first understand Currency

Currency is a form of payment, it is something (usually paper and coins) you exchange for goods & services. The conventional currency relies on network of mints, central banks and governments. Currently every transaction around the world involves exchange of currency of some kind. And the piece of paper, ‘fiat currency’ you have holds value because your government says so. if you take a note and read it you will see “I PROMISE TO PAY THE BEARER THE SUM OF XXXX RUPEES” written on it, that said its a promise by the Bank backed by the Central Government that the note holds XXXX Value.

Indian Currency

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency secured by Cryptography (a method of protecting the information).

The Underlying Technology

Underneath Cryptocurrency is a technology whose aim is to make it possible for two individuals to send and receive payment without revealing their identities and maintaining security of transaction with no involvement of a third party.

Blockchain is a major technology behind Cryptocurrencies (except a few like IOTA – a currency built on Tangle, read more here) Blockchain is essentially a list of blocks connected together and secured using Cryptography. Each Block stores data (transaction), a unique hash (mathematical code to identify the block), and the previous block hash. Blockchain can be thought of as a distributed public ledger with all transactional data.

A Blockchain

Attributes of Blockchain

  1. Immutable – Blockchain can’t be modified. Every time the data is modified the hash associated with the block is recalculated, and since every block contains the hash of previous block it causes the following blocks to become invalid making it obvious that the data is modified (here computational power is the limit, as long as you don’t have enough computational power to recalculate all the hashes).
  2. Consensus – Blockchain uses a peer-to-peer network, allowing peer to peer interactions. Each participant in the peer-to-peer network is known as node. And each time someone adds a block to the blockchain, that block is sent to every node and is verified by every node to establish consensus (to read more refer).
  3. Decentralized & Distributed Structure – Block chain is decentralized meaning the information is distributed to everyone on the network. Each peer has a copy of blockchain but no one can manipulate it.  

How is a Cryptocurrency like Bitcoin issued?

Currencies like Dollar & Rupee are issued by Central Banks, backed by government. The central bank more or less can issue new units of currency anytime they think so. With Bitcoin this is not the case (for those of you who don’t know Bitcoin is the first and most prominent cryptocurrency), Bitcoin is usually mined with the help of specialized computers in warehouses, which work to solve a cryptographic puzzle. Mining is not just about creating new money but also validating transaction. With Bitcoin miners are awarded new bitcoins every 10 minutes. The issuance rate is set, so miners cannot create bitcoins out of thin air by cheating the system. Miners have to use tools i.e. their computing power to generate the new coins. Imagine it like the Gold, instead of mining physically they are mined digitally.

Warehouse of Specialized Computers

Crypto vs Fiat

With Fiat Money the very nature of the system is its flaw, the ability of Central Bank and Government to be able to manipulate its value by changing the supply & demand, and causing inflation / deflation. Since the system is Centralized not everybody has a say in it. That is where Cryptocurrency (Crypto) comes into picture. Cryptocurrencies challenge the orthodoxy of Fiat Currency. Cryptocurrency is decentralized, distributed, and works in a peer-to-peer network which is difficult to cheat and manipulate.

Types of Crypto and differences

  • Bitcoin (BTC) – Launched in 2008, The gold standard within the Cryptocurrency space. It is the first and most prominent cryptocurrency. It has a coin limit of 21 million and uses ‘SHA-256’ algorithm for hashing.
  • Litecoin (LTC)- Launched in 2011, It is referred to as Silver standard and is believed to feature faster transaction times. Litecoin like other currencies is an open source, global payment network that is completely decentralized. It has a coin limit of 84 million and uses ‘scrypt’ algorithm as proof of work.
  • Ether (ETH)- Ether is the cryptocurrency built on top of the open source Ethereum blockchain, which runs smart contracts. Launched in 2015, it is currently the second-largest digital currency by market cap, 1/10 the size of bitcoin. Ether supply is not capped like Bitcoin and its supply schedule is determined by members of Ethereum community. 
  • Ripple (XRP)– Launched in 2012, it enables banks to settle cross-border payments in real time, offering instant low cost international payment with end-to-end transparency. Ripple doesn’t require mining like Bitcoin reducing the usage of computation power & minimizing network latency. All of Ripple Tokens are pre-mined before launch, only the introduction & removal of XRP from the market supply happens according to the network’s guideline.
  • Bitcoin Cash (BCH)– Introduced in August 2017, as fork of Bitcoin Classic. It is created for the purpose of bigger transaction blocks of ~8MB compared to original Bitcoin block size of ~1MB. Advantage? Faster processing speed for the users.
  • IOTA (MIOTA)– A cryptocurrency without blockchain Instead of a blockchain, IOTA uses “tangle,” which is based on a mathematical concept called a directed acyclic graph, as it is a cheaper alternative compared to blockchain. It is referred to as the Oil Tanker in the Cryptocurrency world, to read more click here.

Above are some major Cryptocurrencies, the number of Cryptocurrencies available today is 1000+ with a overall value close to ~$250 Billion. Check out more here.

Promise of Crypto

Cryptocurrency is currently in its infancy and early adoption phase, nevertheless crypto has potential to revolutionize the FinTech space. The Banking system is old, and nothing much has changed since its inception. Cryptocurrency can help change the face of banking, it can take the power from a few elite and distribute it back to many. Also the technology behind Cryptocurrency has far reaching potential in Finance & other fields, It can help transform the payment ecosystem making it more secure, efficient and affordable. An interesting read on the applications of Cryptocurrency is the article here.   

How to purchase?

Now in case you are wondering where and how to buy/invest in Cryptocurrency then Binance, Coinbase, Huobi Global, Zebpay (available in India), WazirX (available in India) are a few exchanges where you can change your Money for Crypto.

Based on your country some may or may not be available to you. To read more on how to buy Cryptocurrency in India, you may like to read the article here.

Source: Google

Issues with Cryptocurrency

As the saying goes ‘All that glitters is not Gold’, the Cryptocurrency also has its drawbacks. Let us understand some of these –

  1. Volatility – Cryptocurrencies are very volatile and the price may fluctuate a lot in few hours. For example in just 2 weeks in December 2017, Bitcoin lost 25% of its value.  
  2. As a method of Payment– Cryptocurrency still lack the infrastructure and mechanism to be viable for acceptance in exchange of goods and services. Couple this with world price fluctuations, it becomes almost impractical to use.
  3. Difficult to Understand – The underlying technology behind Bitcoin that makes it secure also makes it difficult to understand for a non-techie, making it confusing and less widely accepted for the consumers.
  4. Easy to be used as means of illegal trades – The fact that Cryptocurrency is not fully legal or regularized everywhere it becomes an easy tool for people performing illegal trades like sex offenders, drug dealers etc. According to a data, around $70 Billion in Bitcoin are spend in illegal activities.
  5. Storage Security – Yes, the very thing that make Cryptocurrency safe can be a problem for the user. A Cryptocurrency is stored in a digital wallet and if a user forgets his wallet password, it is near impossible to recover the lost data due to strict integration and encrypted blockchain.

Opinion Alert – All said, given the potential of Cryptocurrency for future it seems like fair but a riskier investment to make. You should not hold more than 10% of your wealth in digital asset like Cryptocurrency and use it as a hedge against the Market Volatility. (you can ignore this section, as it is just an Opinion).

Fun Fact – Dogecoin (DOGE) emerged in December, 2013 as a joke to satirize the growth of Altcoins via meme. It has immensely grown in popularity since and is now among top 25 Crypto assets. It is a derivative of LuckyCoin which is forged from Litecoin (LTC) and uses Scrypt Algorithm. It can be considered as a penny stock of Crypto world, currently valued at $0.0031 i.e. ~20 paisa in Indian Currency.

Thank you for reading, let us know in comments below what is your favorite Cryptocurrency. #KeepLearning

Is Dollar dull again?

Soaring Gold & Silver along with the escalating US-China Trade war may lead to Dollar fade its value. A weaken Dollar & surge in the inflow of capital towards India can help appreciate the value of Rupee.

So, what exactly does Strengthen Rupee or Weaken Dollar mean for the Economy & for you as a Consumer? Let us discuss it Today.

Strong Rupee Impact –

  • Cost of Production Rises as raw materials become expensive.
  • Exports become costlier which may mean Business like textiles, IT etc may lose to its competitors. IT sector earnings may decline, as most of them serves the clients abroad.
  • Imports are cheaper. The appreciation may help in reducing prices of imported consumer goods like your iPhone, Computer or TV etc.
  • Strong rupee may impact the job creation and the overall growth.
  • The stock market gains from foreign inflows, funds keep coming in, and the additional liquidity keeps stock prices high.
  • Also Foreign investors, who can borrow cheap abroad, for example ~1% in Japan, & invest that money in Indian bond market, with yields ~7%, can gain from a strong rupee.
  • Strong Rupee helps Government manage inflation on the lower side and the fiscal deficit.

Weak Dollar Impact –

  • A week Dollar may mean higher prices of commodities like Oil, Iron, Copper etc as they make up for the downfall in dollar.
  • Rising prices of commodities increases the cost for producers which ultimately pushes the prices of goods further downstream like Food, Gas etc, directly feeding into Inflation and off-course making a hole in your wallet.
  • Prices of Imported goods rise and foreign Travelers may need to scale back on Vacations. Topmost imported goods in US are (Consumers watch-out)-
    • Electrical Machinery (including computers and hardware)
    • Vehicles and Automobiles
    • Pharmaceuticals
    • Medical equipment and supplies
    • Furniture, lighting, and bedding
    • Plastics and plastic goods
    • Oil and petroleum products
    • Gems and precious metals
  • Some Business are more likely to take hit than others like Luxury products. When consumers tighten their belts, the first industries to take hit are those manufacturing luxury items and nonessential products.
  • Fuel prices may surge, when the dollar weakens the price of gasoline increase because the nation depends at least in part on imported oil.
  • Exports are more competitive in the global market gaining market shares and at times saving U.S. jobs in the process.
  • Multinational Companies and the Shareholders may gain from the Weakening Dollar.

Lastly let’s look at the Factors that help Influence a Currency Strength –

  • Policies Anti-Inflationary monetary policies and Fiscal discipline helps a Strong Currency by keeping debt and inflation in check.
  • Stability- A well-established, strong & stable government boosts the confidence of Investors, which in turns promote the Currency.
  • Interest Rates- Investors seeking a higher rate of returns are attracted by higher interest rates, and their Investments help promote a Country’s Currency.
  • Geo-political factors- Apart from the factors mentioned above, other external factors like Trade wars, trusted partnerships & support from other Nations can also impact a Nation Currency.

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