If you say that 2020 was the year of cryptocurrencies it won’t be wrong. Because in between March 2020 and March 2021 cryptocurrencies especially Bitcoin zoomed from 4000 USD levels to 62,000 USD levels. Which is more than 15 times your initial investment of 4000 rupees. So before you jump into crypto it is very important to know the basics of cryptocurrencies.
What is cryptocurrency?
Cryptocurrency Is a virtual currency or token that People generated on the internet. So it can be stored on your mobile phone or on a laptop and you do not need any bank or intermediate to transfer it. Bitcoin was the first-ever cryptocurrency launched in 2008.
As you know that cryptocurrency does not need any intermediate to transfer it so it is globally available, near to instant, 24 hour service.
How safe cryptocurrencies are?
You know that no Bank or Government of the world is controlling Cryptocurrencies So it is possible that you have doubts about the safety of cryptocurrencies. Let me assure you that all cryptocurrency transactions are secured by a technology called a blockchain.
Blockchain is an immutable, decentralized ledger that tracks and record transactions being made on the system. In simple words, it is a ledger of the database in a chain system. In the blockchain, you can go back and check transactions made by people without any hustle. Other than that blockchain is a decentralized database which means no one is the owner of the blockchain and everybody is the owner of the blockchain.
Benefits of cryptocurrencies
Due to its nature decentralization, no intermediate to transfer Cryptocurrency provide so many benefits to its users.
- No Transaction fee
When you trade in cryptocurrencies they do not charge any transaction fee as your bank or payment processor does, such as Paypal. Cutting the middle man was Moto behind creating cryptocurrencies. Which is doing great as more and more people are joining crypto these days.
- More Privacy
As you know blockchain provides safe and private way to do the transaction which attracts more and more people on daily basis. Even though all the data of Bitcoin or any cryptocurrency transactions is available on the blockchain system. But still one can not tell who made transaction and what is the identity of the person who received it.
- Great Future
Many financial analysts have said that blockchain is the future. You can also use it to transfer your physical assets such as Car, House. That doesn’t mean you can push car via the Blockchain. It means you won’t have to go to the Motor vehicle registry to transfer/trade your vehicle.
- Internationally available
All the cryptocurrencies based on blockchain are available globally and you can send cryptocurrency from US to a person sitting in India without any transaction fee or charges.
- No counterfeit
As you know that all the cryptocurrencies are virtual currencies that means there is no physical coin or note available for them. Which makes a huge security point as nobody can create a counterfeit of any cryptocurrency.
In 2008 when first time Satoshi Nakamoto published the white paper. It was clear that cryptocurrencies are made to replace the traditional currencies hold by Countries. And the technology of blockchain which is the mother of all cryptocurrencies is also an open-source and decentralized system. So that not one person can claim ownership of it.
- More accuracy
As you all know that not many people are involved while doing any transaction in cryptocurrency. It is a peer-to-peer system. Which provides more accuracy due to less Human involvement.
Disadvantages of cryptocurrencies
If cryptocurrencies have benefits at the same time it also has a few disadvantages or negative points also. These disadvantages are more Political and regulatory than technical. Let’s deep dive into a few of these.
- High operational cost
As you may have read that cryptocurrencies do not require any third parties so transactions are at a low cost. But These are far from free. Because when you are making a transaction it uses a “proof of work” system to validate those transactions, Which consumes a vast amount of computational power.
So in order to proceed and validate these transactions blockchain gives the tokens which is cryptocurrency but in a very small amount to appreciate their time and energy. Which consume so much electrical energy.
- Illegal activities
A few researchers in the last 2-3 years have said that cryptocurrencies are gaining so much popularity because they are being used to do illegal transactions. This is somewhat true because when you talk about the privacy and security of a user, then people who do not have good intentions can exploit that system very easily. So this is what has recently is happening with cryptocurrencies.
- Financial losses
When developers were building a system that was untraceable, secure, and strong against any kind of hacking they created digital private keys. These keys are linked to your cryptocurrency wallet, in order to access it from the system. Which is good on paper. But when you lose this private key then it is near to impossible to access the wallet in which you hold your cryptocurrency. So this can eventually lead to financial loss.
- Operated by organisations
The sole idea behind cryptocurrencies was decentralization. But there are few organizations that are controlling a few cryptocurrencies and they manipulate their value. Even usually traded coins such as Bitcoin, Eth are under suspicion.
- Bad affects of mining
You may know that you can mine cryptocurrencies you are at your home which is called crypto mining. But cryptocurrency mining takes so much computational power and electricity input. So there are people in countries like China who used coal to produce electricity which is increasing carbon footprint in the world.
- No Refund or Cancellations
If you buy something online or did a deal using cryptocurrencies. And now there is a dispute between two parties or if someone sends money to the wrong wallet then the coin can not be refunded. It is always advised to use cryptocurrencies on platforms you truly trust.
Different types of cryptocurrencies
As per the latest report published by different cryptoExchangesThere are more than 10,000 different types of cryptocurrencies available in the world. Let’s look into the history of few famous ones.
- Bitcoin is one of the most popular Crypto currency of the world it was created in 2019 by unknown persons who used secret name Satoshinakamoto and revealed Bitcoin the first ever cryptocurrency in the world.
- Ethereum is the second most popular cryptocurrency after the Bitcoin in the world. Even though Ethereum is based on the same technology as Bitcoin. Ethereum is not a peer to peer payment system like the Bitcoin, it is a decentralized software platform that power smart contracts and distributed application.
- Litecoin is commonly referred as silver to Bitcoins gold. It was released in 2011 as a competition to the Bitcoin.
Is cryptocurrency good for investment?
Due to the recent boom in The prices of all the cryptocurrencies, a lot of people are investing in them on daily basis. And it’s attracting a lot more. So it is very important to know few facts before you put your hard-earned money into it.
- Most Currencies follow BTC
You make get shocked that most of the cryptocurrencies follow the price of Bitcoin which was the first-ever cryptocurrency. Ups and downs in the price of Bitcoin can easily drag other currencies also. And this price follow condition may bite you if suddenly one cryptocurrency stopped following Bitcoin exactly.
For example, if Bitcoin is at 50,000 USD and ABC coin is that 50 USD. And you bought 10 ABC coins and invested 500 USD in it. Now BTC is at 45000 and your coin is at 44 USD. This is fine as investing sometimes may go down also. But after few days BTC crossed 51000 USD and your coin is still around 48 USD now you have to stay invested longer than expected. And That can be devastated for your investment. So this is the risk which you always have to have in mind.
- So much volatility
Cryptocurrency news is one of the most volatile investments these days. You can see 40-50% off fall in a day and 40-50% of the increase in prices also. So your investment in cryptocurrency is always at greater risk than any other investment. Those people who are risk averse Investors should not do any investment and even if you do then Don’t put all of your eggs in one basket.
Due to volatility cryptocurrencies are heaven for traders who are looking for or fast and quick gains.
- No Regulator
Even though cryptocurrencies are listed on few major Stock exchanges is but still there is no Regulator checking it. That is why manipulation is very easy in the cryptocurrency market. Cryptocurrency can show untraditional price moves. Other than that there is no physical asset in which a cryptocurrency deals like a stock market. You won’t get any dividend and your investment may go 0 because Suddenly a new rule by govt got passed and cryptocurrency is illegal.
- Fraud Cryptocurrency
As the popularity of the crypto market is going up scams and fraud companies have also started their own cryptocurrency to scan new Investors. For example, a person will create his/her own cryptocurrency and hold 100% of it. which is against the core principles of any cryptocurrency, decentralization. Then they will sell that coin in a bundle with promises like dividends, Big returns, etc. Instead, they will run away with your money. So always be focused and aware in which currency are you investing.
- No fixed returns
Most of the cryptocurrencies which are listed on any cryptocurrency exchange do not provide any Fixed returns on your investment. For example, if you start a fixed deposit with your bank, your bank will pay you a fixed return on your investment. Which could be 5% or 6% depending on the scheme. But in the crypto market, there is no fixed return even if you stay invested for a year or more.
Who should invest in cryptocurrency?
In my opinion, I will suggest investing in cryptocurrency to only those people who love to take risks and have enough income sources to survive in case you face losses in the crypto market. And due to its volatile nature, never invest your 100% saving in just the cryptocurrency market. Always have a diversified portfolio or just put a fraction of money in cryptocurrency like 10% of overall investment.
How to buy Cryptocurrency in India?
Till now we have talked about all the Major advantages and disadvantages of cryptocurrency. Other than that we have also learned who should invest in cryptocurrency and how one should invest in cryptocurrency. Now let’s talk about how to buy Cryptocurrency in India.
- Select a cryptocurrency
The selection of any asset for the purpose of investment is always a hard task to do. Because you have to figure out a few things before you do the investment such as expected return, expected loss, risk and reward ratio, how much one should invest and how much time one should stay invested.Although all the cryptocurrencies follow Bitcoin for their movement but still always have an eye on the price of the cryptocurrency in which you are invested. It can be different and you face loss due to that.
- Select Crypto exchange
Selecting the right cryptocurrency exchange is very important for your investment. There are many exchanges in India and not any of them is regulated by the Securities and Exchange Board of India. So it is always advertised to use the most trustworthy cryptocurrency exchange such as CoinDCX which provides the best in class platform to trade and also works like the normal cryptocurrency wallet. You can use it on any device such as Android, iOS, windows, etc.
- Documents needed
To start any wallet of cryptocurrency and use that wallet as a trading account you have to have KYC with the exchange you are using. And for the verification of KYC you have to have an Aadhar card or Some other government-issued identification card.You will also require an Indian Bank account.
Note: For the safeguard of your wallet and investment most of the crypto exchanges in India have a rule that you can only withdraw your funds in the bank you provide while registration or changed after. Other than that you cannot even deposit your funds from different bank accounts.
Does the government of India impose GST on cryptocurrency?
Yes, Government of India does impose 18% GST on the trading of cryptocurrencies.
Are crypto gains Taxable in India?
Yes, crypto gains are taxable in India Government of India does impose regular income tax rates on all crypto gains.
Which is the most popular cryptocurrency?
Bitcoin is one of the most popular cryptocurrencies in the world.
Who invented cryptocurrencies?
In late 2008 a person or a group of people using the name Satoshi Nakamoto published a whitepaper with the idea behind a new digital currency named Bitcoin.
Can I create my own cryptocurrency?
Yes, you can create your own cryptocurrency.
Which cryptocurrency has the biggest market capitalization?
Bitcoin has the biggest market capitalization in the cryptocurrency world.
Is cryptocurrency legal in India?
Cryptocurrencies are not legalized by the Government of India. It is also not illegal to hold buy or trade any cryptocurrency. And Government of India is also planning to launch own cryptocurrency so feature is great of cryptocurrencies in India.
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