In terms of economies, think or Cryptocurrencies as the new kids on the block. There’s Bitcoin (the most popular one), and the others are Ripple, Ethereum, Altcoins etc. (not so popular members but equally talented).
Cryptocurrencies haven’t garnered India’s full attention but they’ve created enough noise to alert the officials, the RBI and the Finance Minister.
Let’s get a few things clear…
1. Limited or not?
All cryptocurrencies are in limited supply. That’s one of the most important factors that differentiate it from physical currencies. For instance, the RBI in India can issue more notes as and when needed. But, that’s not the case for cryptocurrencies. When a developer creates a cryptocurrency, he sets a limit in advance. For instance, there’s only 21 million Bitcoin, of which 80% has already been mined. There are limited 100 billion Ripples. These limits are what make cryptocurrencies so valuable.
However, there are speculations that some cryptocurrencies don’t come with limits. New cryptocurrencies are produced on a yearly basis. For instance, Dogecoin produces 5 million coins every year.
2. Legal or not?
The legality of cryptocurrencies differs from nation to nation. 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.
But what’s the scene in India? Well, Bitcoin is not recognized as a legal tender in India. The finance minister, Arun Jaitley, has said that the RBI has not issued any licenses or legislation to operate cryptocurrencies in India. Thus, using them as a medium for payment is not authorized, especially after the Finance Minister mention their illegality in the 2018 Budget.
3. Anonymous or not?
One of the reasons for why more and more people are using cryptocurrencies is the anonymity they provide. With the help of cryptocurrencies, a huge amount of money can be transferred from one part of the globe to the other, without anyone finding out. For instance, Monero, one of the most anonymous cryptocurrencies, is completely private and untraceable. Even the amount transferred is not revealed, only an approximate amount is recorded onto the public ledger. Another one would be the newly launched DeepOnion, which is completely anonymous since coins are received and sent over the TOR network.
While on the other hand there are reports claiming that Bitcoin, which we think is anonymous, is not. As every transaction is made public to the entire world on a ledger.
4. Invest or not?
The recent surge in the prices of cryptocurrencies has tempted many to invest in them. For instance, recently the Bitcoin was hitting the headlines for being at an all-time high in value. This made more and more people investing in it.
But the question remains, is it safe to invest in cryptocurrencies?
There is no doubt that there is risk involved. After all, they are not backed by any government or institution. If you lose money in these investments, it’s gone, poof! No one can bring it back, not the central bank or the courts.
However, if one does take proper precautionary and safety measures, then it’s surely something to consider as an investment option. After all, at one point, it promised a 300% return, much higher than the usual bank deposits or mutual funds.
5. Taxed or not?
Before 2018, there were many speculations that you don’t need to pay tax earnings from Bitcoin, that’s not the truth. Arun Jaitley during the 2018 Union Budget announced that cyptocurrencies, like Bitcoin, are illegal in India and the government would take every step to make it illegal.
As per the Income Tax laws, any income, irrespective of the form in which it is received, has to be taxed. For instance, if you make a profit from trading bitcoin, it will be treated as a business income. Whereas if you hold bitcoin for a long time as an investment (capital assets), the profit you make will attract capital gain tax.
So, even if cryptocurrencies are not mentioned in the Income Tax Act, you still have to pay taxes on them.