What is Cryptocurrency?
Cryptocurrencies are not regulated by any central government agency and therefore free from government interference. Based on blockchain technology, many cryptocurrencies are decentralized networks.
A cryptocurrency is a digital currency based on a network dispersed over a large number of computers. The decentralized system of cryptocurrencies makes transferring money faster and cheaper. It won’t crash at a single point of failure. Besides these coins do not come with any government guarantees or approvals.
The term “encryption” refers to cryptography and several cryptographic algorithms that help secure these records, such as B. hash functions, elliptic curve cryptography, and public-private key pairs. Investors need to know that cryptocurrencies are private digital currencies that are not sanctioned by the Indian government.
The Indian government is testing its own digital currency and does not support existing cryptocurrencies.
Cryptocurrencies act as a store of value or a medium of exchange. All of this rests on a public ledger technology known as the “blockchain”. It records data and tracks transactions sent over the network. A blockchain is a virtual chain of blocks where each block contains a set of transactions and other information. The block becomes immutable, meaning that the data stored in the block cannot be deleted or replaced once added to the chain.
Nodes are the network of contributors that govern the cryptocurrency. In the network, nodes perform various roles, from storing to validating transaction data. They manage the entire database and validation of new transaction entries. The best part is that there is no single point of failure, which means that if a node goes down, there will be no impact on the blockchain ledger
What Are The Advantages of Cryptocurrency?
Cryptocurrencies are wildly popular among investors worldwide. With the participation and industrialization of technology, digital currencies have achieved a satisfactory position relative to other currencies such as Bitcoin. The use of cryptocurrencies allows easy transfers without the involvement of banks and other financial institutions.
Let’s see some more benefits of doing this:
Inflation Protection
Many currencies lose value due to inflation. Many see cryptocurrencies as a hedge against inflation. Bitcoin has a hard cap on the total number of coins that will be minted. For example, if the growth of the money supply exceeds the growth of the Bitcoin supply, the price of Bitcoin will increase. Many other cryptocurrencies use the same mechanism to limit supply and serve as a hedge against inflation. In terms of volume, only 21 million bitcoins will be released, as indicated by the ASCII computer file. Therefore, the value will increase due to increased demand, potentially keeping pace with the market and preventing inflation in the long run.
Transactional Speed
For example, if you want to transfer money to a loved one in the United States, there are several ways to transfer assets or funds from one account to another very quickly. Cryptocurrency transactions are completed within minutes, which is attractive to many people. Within U.S. financial institutions, most transactions are processed within three to five days, while transfers take at least 24 hours.
Cost Effective Transactions
Cryptocurrencies can help move money around the world. Transaction costs using cryptocurrencies can be minimal or zero. It is negligible because third parties like VISA no longer need to confirm transactions.
Decentralization
Cryptocurrency is a representative of a new decentralized model of money. They also help fight the monopoly of money and keep money out of control. No government organization can determine the value or flow of coins, which is what crypto enthusiasts believe makes cryptocurrencies safe and secure.
Diversity
Investing in cryptocurrencies can generate profits. This market has expanded tremendously over the past decade. The cryptocurrency market has a limited history of price activity, and so far it appears to be unrelated to other markets such as stocks or bonds. This makes cryptocurrencies a good source of portfolio diversification. More stable returns can be obtained if combined with assets with less price correlations. For example, if your stock favorites go down, your crypto assets might go up, and vice versa. However, cryptocurrencies are often very volatile, and if your asset allocation is primarily based on cryptocurrencies, you will end up increasing the volatility of your portfolio.
Accessibility
Investors only need a computer or smartphone with an internet connection to use cryptocurrencies. Opening a cryptocurrency wallet requires no identity verification, credit checks, or background information. It’s faster and easier than the old financial institutions. It also enables individuals to easily conduct internet transactions or send money to someone.
Safe And Secure
No one can access your funds unless they are given access to the private keys of your encrypted wallet. If you forget or lose your keys, you will not be able to get your money back. Additionally, transactions are secured by a blockchain system as well as a decentralized computer network that verifies transactions. Investors are safer keeping crypto assets in their own wallets. Transactions are secured through the use of public and private keys, proof-of-work or proof-of-stake, and various other forms of incentive schemes.
Transparent
Due to the decentralized nature of the blockchain, remittance transactions can be viewed simply by tracking real-time transfers using the blockchain browser on the platform. This open and transparent system reassures investors that there is no corruption.
Private
No third-party interference provides any level of privacy for your account. On the blockchain, the investor has an identifier and your wallet address because the transaction is pseudonymous and has nothing to do with you. There are even plenty of privacy-focused coins to enhance the cryptographic nature of privacy.
Currency Exchanges Are Done Effortlessly
Investors can buy cryptocurrencies using currencies such as US dollars, Indian rupees or European euros. Various cryptocurrency exchanges and wallets help investors trade cryptocurrencies and exchange currencies in different wallets with the lowest transaction fees.
What Are The Disadvantages of Cryptocurrency?
- Investing in cryptocurrencies may seem attractive and profitable, but there are also some downsides that investors should consider.
- Cryptocurrency claims to be a form of anonymous transaction, but it is actually anonymous, meaning it leaves a digital trail for the FBI to decode. Therefore, it is possible for federal or government agencies to step in to track the financial transactions of ordinary people.
On blockchains, there is a constant risk of a 51% attack, meaning a miner or group of them gains more than 50% control over the mining hashrate of the network. In the process of taking control, malicious groups can reverse completed transactions, stop ongoing transactions, double spend coins, prevent new transactions from being verified, and more. Still, such attacks are only a risk of recent hard forks of networks and new blockchains.- Most blockchains use a proof-of-work consensus mechanism. Network participants must use powerful ASIC computers and the correct hash to add blocks to the network. As a result, electricity consumption is excessive and countries are taking steps to reduce the impact on the environment.
The lack of important guidelines regarding transactions is a major drawback of cryptocurrencies. The “no refunds or cancellations” policy can be seen as the default for wrongful transactions via crypto wallets, with each crypto exchange or app having its own set of rules.
Are Cryptocurrencies Legal In India?
Cryptocurrencies as a form of payment are not regulated or issued by any central authority in India. When dealing with cryptocurrencies, there are no guidelines for resolving disagreements. Therefore, if you wish to trade cryptocurrencies, do so at your own risk.
Indian Finance Minister Nirmala Sitharaman has launched a tax on digital assets, sparking debate on the legality of cryptocurrencies in the country.
Given the attitude of the Reserve Bank of India (RBI) Governor and other key ministers from time to time, it is safe to say that cryptocurrencies are not banned in India. Cryptocurrencies are unregulated in the country until 2022. That changed after the government introduced 30% and 1% taxes on cryptocurrency profits and a withholding tax in the 2022 Union Budget. The event marks the official start of regulation of cryptocurrencies in the country by the Indian government.
While many support the decision as it marks the beginning of the road to recognition of cryptocurrencies, the Indian government has yet to issue an official notification requiring cryptocurrencies to be considered legal in India.
Tax on Cryptocurrency in India
Cryptocurrency taxation is one of the most confusing aspects of investing in India. In the early years, India did not impose income tax or Goods and Services Tax (GST) on cryptocurrencies, but the recent 2022 Union Budget introduced a tax regime for digital or virtual assets containing cryptocurrencies.
- Cryptocurrency investors need to carefully calculate losses and gains as part of their income.
- A 30% tax is imposed on income from the transfer of virtual or digital assets. The tax includes cryptocurrencies, NFTs, and more.
- No deduction for acquisition costs is allowed if profits on the transfer of virtual or digital assets are reported.
A 1% withholding tax (TDS) is imposed on buyer payments if the threshold is exceeded. - When someone receives or transfers cryptocurrency as a gift, the beneficiary will be taxed on it.
Summary
Cryptocurrencies can be purchased through cryptocurrency exchanges in India. All e-commerce sites do not allow cryptocurrency transactions. Believe it or not, popular cryptocurrencies like Bitcoin and Ethereum are almost never used for retail transactions in India. They are mostly used for cross-border transfers outside of India.
Before investing in cryptocurrencies, cryptocurrency investors should have sufficient knowledge and understanding of the risks involved. Considering all the benefits mentioned earlier, it’s hard to argue that investing in cryptocurrencies is worthless. These benefits are very valuable for investors who value security and fast transactions.