All you need to know about Cryptocurrency in India – In order to understand Cryptocurrencies in India, we must first answer questions like – What are Cryptocurrencies? How do they work? Are they any better than good old paper currencies? Are they even legal in India? Let’s have a look…
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What are Cryptocurrencies, and how do they work?
Cryptocurrencies are a form of digital asset which can be traded and exchanged for goods. It is a decentralized currency system that is not regulated by a government or any intermediate. It works on the blockchain technology.
Blockchain is a technology that involves transactions being added to containers called blocks, where a chain of records are created. The data or records of these blocks cannot be modified ex post facto without changing all succeeding blocks.
Blockchains work as a secure universal record of who owns what. If a user wants to make a transaction, he must request it. A block representing the transaction is then created, which is then broadcasted to all modes of the network and these modes then validate the block. This block is added to the chain and the transaction then gets verified and executed.
Are Cryptocurrencies better than traditional paper currencies?
If you look into the history of currency, you will find that people had used different ways to purchase goods and services according to their requirements. Back in time, people used the barter system and eventually switched to gold and silver coins. However, as these exchange systems had their drawbacks, paper currency was introduced, which gained widespread popularity and is still widely used across the world.
In a digital era like the present times, digital wallets and credit cards are used to make payments online. However, as the banks and government control the paper currency, it loses its value (inflation) as the government prints more paper money to meet the nation’s requirement. This is one of the reasons why Cryptocurrency has been introduced as it is the most convenient way to make transactions in modern times without interference of an intermediate.
It only takes a few seconds to complete a transaction without any limits to the fund. As in the case of paper currencies, digital wallets have the risk of getting hacked, but the same cannot happen in the case of Cryptocurrencies as they work on blockchain technology and use complex algorithms.
Why Invest in Cryptocurrency?
Since Cryptocurrencies are constantly increasing in value, unlike paper currencies, they are gaining popularity among investors.
For example, the value of Bitcoin in 2016 was around ₹26,000 but in just five years, the value of a single Bitcoin (at the time of writing) has jumped to over ₹36,00,000 (36 Lakhs) in 2021. With the increasing price of a single Bitcoin or any other Cryptocurrency, you don’t have to buy a complete coin. Since it’s virtual, you can invest by buying even a tiny part of it.
You must do good research and compare different Cryptocurrencies to make the best decision and earn maximum profit. You should always stick with the top 30 Cryptocurrencies and invest in at least 5-6 different cryptos. Adopting this strategy will help you overcome various risks and also multiply your money at a much faster rate.
Some Popular Cryptocurrencies
1. Bitcoin (BTC)
Bitcoin is one such decentralized Cryptocurrency that works on the blockchain technology. It is very similar to how the paper currency works as the transactions are manual and require you to perform the transactions personally.
Bitcoin operates as a purely peer-to-peer electronic currency, as the payments here are sent directly from one person to another. To make a standard Bitcoin transaction, it takes around 10 minutes to complete it. The demand for Bitcoin is steadily increasing, but the supply is pretty much the same, leading to higher prices.
As seen last year, the value for Bitcoin grew three folds by the end of 2020, drawing many investors towards Bitcoin. Bitcoin is known as digital gold and is an excellent asset from an investor’s point of view.
2. Ethereum (ETH)
Ethereum is one of the most popular Cryptocurrencies. It is used as a digital currency within the Ethereum network with its own internet browser, coding language and payment system. The transactions using Ethereum can be done automatically or manually, and it only takes around 20 seconds for a single transaction to be completed.
Ethereum is a bit more advanced than Bitcoin. The value that it brings to the table is immense as it is the second leading Cryptocurrency for many years now. Ethereum is not just an asset that holds or gains its value, but also an income-producing asset capable of pumping out some rewards.
Depending on the demand, rewards for owning this asset vary from 1.5-18%. Like other Cryptocurrencies, this also has a lot of risks involved as it is volatile.
3. Ripple (XRP)
Ripple is the world’s third leading Cryptocurrency that connects banks, payment providers and digital asset exchanges. Ripple makes international payments instant and cheap as it requires only 4 seconds to complete a transaction.
It is the most scalable Cryptocurrency in the world. Ripple’s path-finding algorithm finds the most affordable and fastest way between two currencies. All payments travel through the RippleNet system, which is tied together end to end with Ripple’s inter ledger protocol. This connects every payment service in the world and processes payments across the network.
Ripple is premised, and its supply is quite large (100million) compared to Bitcoin (21million). It is not entirely decentralized as over 50% of it still belongs to the company, and the rest is spread among the users. Ripple is considered suitable as a short-term hold.
4. Dogecoin (DOGE)
Created as a joke in 2013, Dogecoin is now the most trendy Cryptocurrency in the world, gaining widespread popularity among investors. Dogecoin is an inflationary coin as there is an unlimited number of Dogecoins that can be mined to create a more versatile newcomer-friendly community.
But as more dogecoins are mined, the value of each dogecoins is worth less, as seen in the case of paper currency, which causes inflation. At present, there are over 120 million dogecoins in circulation. It is considered more of a speculative gamble than a serious investment with a pump and dump scheme.
In early 2018, Dogecoin went up around 5000% but crashed later on along with other Cryptocurrencies. As Dogecoin is making people rich, it is also taking away a lot of people’s money as it might just be a classic game of speculation.
5. Litecoin (LTC)
Litecoin is a decentralized digital currency that works as a valid, tested and secure medium of exchange. It allows confidential transactions in development that provide a new layer of privacy to payments or how much Litecoin you own or what you send over the Litecoin network.
Litecoin enables near-instant borderless transactions anywhere in the world backed by industry-leading infrastructure, technology with billions of dollars in trade volume. It only takes 2-3 minutes to make a transaction through the Litecoin network.
Litecoin values your personal liberties and freedom to put you in complete control of your money. Just like Bitcoin, Litecoin is also an asset and is also known as digital silver.
• Cons of Cryptocurrency
The transactions made using Cryptocurrencies cannot be traced, this becomes a major advantage for criminals and money laundering schemes, as they can simply pump the black money into Cryptocurrencies and bring it into circulation, without having to worry about the origins and tracking of the illegal money that has been brought in.
Also, like every other investment with possibilities of high returns, Cryptocurrencies also have risks involved as it is very difficult to know when to buy or sell these coins. Cryptocurrencies are highly volatile and are not backed by anything. A lot of people are getting rich by investing in Cryptocurrency; on the other side, many people are also losing their money.
• Legality of Cryptocurrencies in India
In 2018, RBI restricted banks and other financial organizations from facilitating trades involving Cryptocurrencies. Cryptocurrency exchanges reacted with a complaint before the Supreme Court and received some relief in March 2020.
As of now, there is no ban on Cryptocurrency in India. Exchanges through Cryptocurrencies are legal, but it is not a legal tender in India. The Central Board of Direct Taxation has also announced a tax on the profits made from Cryptocurrencies. The government, in February 2021, announced that it plans to enact a law restricting trading in all Cryptocurrencies—with the exception of those granted by the government itself.
This law, if comes into act, will tear down the very basic principles on which the Cryptocurrency network is built – no intervention from the government or any regulatory authority. Only time will tell how the Cryptocurrency trend turns out to be in India, if the government backs it up.
