Cryptocurrencies, like Bitcoin, Dogecoin, and Ethereum, have gained popularity as investment opportunities in the world of new age economics. However, rumors and uncertainty have caused many Indians to hesitate when it comes to investing in cryptocurrencies in significant amounts. Despite this hesitation, cryptocurrencies have caught the attention of both the Indian government and the Reserve Bank of India, prompting the creation of regulatory measures specific to these digital assets.
Let us clarify a few things about cryptocurrencies in the Indian context.
1. Is the supply of cryptocurrencies limited or not?
Cryptocurrency Limited Supply
All cryptocurrencies are in limited supply. This is one of the most important factors that differentiate it from physical currencies. For example, in India RBI can issue more currency notes and coins if needed. But, this is not the case with cryptocurrencies. When a developer creates a cryptocurrency, he sets a limit in advance. For example, there are only 21 million bitcoins, of which 80% have already been mined. These limitations are what make cryptocurrencies so valuable.
However, there is speculation that some cryptocurrencies do not come with limits. New cryptocurrencies are produced every year. For example, Dogecoin produces around 5 million coins every year.
2. Bitcoin is Legal or not?
Bitcoin is not a legal tender.
The legality of cryptocurrencies varies from country to country. While some countries allow their use, some have banned them. They are legal in the US, Canada, Mexico, but Russia, Bangladesh, Thailand have banned them.
Recently two countries, Central African Republic and El Salvador have been in headlines after they adopted bitcoin as official currency or legal tender.
Bitcoin is not recognised as legal tender in India, unless there is a major policy change, it will never happen. Finance Minister Nirmala Sitharaman had said using crypto as a medium for payment is not authorised and nor regulated by any Indian agency.
As of today, bitcoins are not illegal nor banned in India.
3. Are cryptocurrencies Anonymous ?
One of the reasons why more and more people are using cryptocurrencies is because of the anonymity they provide. With the help of cryptocurrencies, huge amounts of money can be transferred from one part of the world to another without anyone knowing. For example, one of the most anonymous cryptocurrencies, Monero, is completely private and untraceable. Even the transferred amount is not disclosed, only an estimated amount is entered in the public ledger. Another new launch will be DeepOnion, which is completely anonymous as coins are received and sent over the TOR network.
On the other hand, there are reports that claim that bitcoin, which we believe to be anonymous, is not. Since every transaction is made public on a ledger for the whole world.
4. Invest or not?
The recent surge in the prices of cryptocurrencies investing in digital currencies has prompted many people to invest in them. For example, recently bitcoin was in the news for being at its all-time high. More and more people invested in it.
But the question is, is it safe to invest in cryptocurrencies?
There is no doubt that there is risk involved. After all, they do not have the support of any government or institution. If you lose money on these investments, it’s gone, poof! No one can bring it back, not the central bank or the courts.
However, if one takes proper precautionary and safety measures, it is certainly something to consider as an investment option. After all, at one point, it promised 300% returns, much higher than normal bank deposits or mutual funds.
5. Status of Bitcoin in India: Taxed or not?
Before 2018, there was a lot of speculation that you do not need to pay tax income from bitcoins, this is not true. Arun Jaitley announced during the 2018 Union Budget that cryptocurrencies like bitcoin are illegal in India and the government will take every step to make it illegal.
As per the income tax laws, any income, in whatever form it is received, is liable to tax. For example, if you make a profit from bitcoin trading, it will be treated as business income. Whereas if you hold bitcoin as an investment (capital asset) for a long time, the gains you make will be subject to capital gains tax.
As per the present status of Bitcoin in India, even though cryptocurrencies are not mentioned in the Income Tax Act, you still have to pay tax on profits earned through them.
6. Crypto is a volatile currency ?
To an extent this is true, since the crypto world is not controlled by a central bank or any other agency, the lack of regulation drives volatility in cryptocurrencies. In recent days, a tweet by Tesla founder Elon Musk caused Dogecoin prices to skyrocket. The same can go down with another tweet. Other than that media hype, investor sentiments and government stance towards cryptocurrencies can influence their prices.