Complete Guide on Cryptocurrencies

Posted by  Fintra , updated 2021-07-03

Complete Guide on Cryptocurrencies

Since the Supreme Court has provided legitimacy to cryptocurrencies in India, without any doubts, cryptocurrencies are becoming the major force in the world of investments today. Over the past several years, it all started as an experimental technological project and now it has developed into a massive, global trend with the potential for gaining significant profits investors. For investors who are new to the cryptocurrencies world, the sheer size of the space may be intimidating because there are thousands of digital currencies. In fact, more are being added every month. Besides this, the investors will also have to make many other decisions, too, such as how to invest, how to store their digital assets, and crucially, where and how to transact in cryptocurrencies. In the case of the latter of these considerations, one of the most popular, straightforward ways to buy and sell digital assets is through a cryptocurrency or digital currency exchange. Although it sounds simple, it can get tricky especially when accounting for the huge numbers or more of these exchanges which are currently available globally.

A cryptocurrency (or “crypto”) is a digital currency that enables you to purchase goods and services or trade them for profit. This technology uses an online ledger with strong cryptography for securing online transactions. 

Indeed choosing the right digital currency exchange and/or cryptocurrency can have a significant impact on the success of your cryptocurrency investments, hence in this blog, Fintra will explore how to select the best cryptocurrency for your investing needs. The topics we will be highlighting are:

  1. What Is Cryptocurrency?
  2. How Cryptocurrency Is Purchased And Are They Taxed?
  3. Why Are Cryptocurrencies So Popular In India?
  4. Are Cryptocurrencies Legal In India?
  5. The Top 5 Cryptocurrencies To Invest In India 2021
  6. How To Protect Yourself While Purchasing Cryptocurrency?
  7. How To Avoid Cryptocurrency Scams
  8. How Much To Invest?

What Is Cryptocurrency?

                                         what is cryptocurrency

In ancient times there was a barter system of exchange that later on got diminished due to its inherent flaws. Hence, from then onwards various types of researches were conducted to make Digital money. Gradually the paper and coin currency was invented, they are now being the popular means of currency around the globe. In today’s modern economy, we have real money in the form of paper and coins and Digital money in the form of debit and credit cards, electronic wallets, etc. that are controlled by central or common authorities.

Speaking about cryptography, it is a similar concept for digital currency, but in a decentralized manner, which means no servers are involved for processing transactions and no central authority governs it. Cryptocurrency, a digital type of currency, is used in transactions and trading. Unlike paper currency, cryptocurrency is not physical. Due to this reason since cryptocurrency is a decentralized kind of money, it cannot be regulated by any government or group of governments.

Cryptocurrency essentially functions on the principles of cryptography: A method used to protect information and communications by using codes that only those for whom the information is intended can read and process. 'Crypt' is a prefix that means 'hidden' or 'vault', and the suffix 'graphy' stands for 'writing.' In this mechanism, it is impossible to have any duplication of transactions or involve counterfeit currency. Various cryptocurrencies are decentralized networks that are based on blockchain technology; the list of records is growing all the time. They are termed as blocks that link and secure each type of cryptocurrency, and then there mining, a single network, in which all the funds are stored. In other words, mining is a process by which cryptocurrency gets validated. Some popular cryptocurrencies are Bitcoin, Litecoin, Ethereum, Z-cash.

How Cryptocurrency Is Purchased And Are They Taxed?

According to market research, nearly more than 6,700 different cryptocurrencies is being traded publicly, and cryptocurrencies continue to increase, raising funds through initial coin offerings, or ICOs. Pondering how to purchase cryptocurrencies? Well, the answer is very simple. To purchase a cryptocurrency, the individual has to first open a digital wallet. This will be the place where one can use its currency and can purchase or sell goods or services.

Speaking in general terms, whenever cryptocurrency term is used, we usually tend to associate it to Bitcoin. Bitcoins were the original and the first form of cryptocurrency, after which various other forms such as Ethereum, Litecoin, Dark coin, dash, and many others were brought on stream.

Bitcoin appeared in the market first in 2009, since then it has been flooding the business world. It so drastically increased that its value went from $1000 to over $19,000 in 2017 alone. This marked the first and most popular of all forms of cryptocurrency. In fact, as per one another source, it is stated that Bitcoin price is approximately Rs. 30 lakhs, 2 per coin. Due to knowing these prices, various potential investors have assumed they couldn't invest in such high valued assets, however. Investors are unaware of the fact that they can purchase Bitcoins in fractions, too. In India, there're crypto exchanges such as CoinSwitch Kuber, that enable users to purchase Bitcoins at a minimum investment of Rs. 100.

Apart from Bitcoins, various other cryptos in the market also have the excellent potential of earning high returns. For example, in 2015, Ethereum, another form of cryptocurrency, was kick-started, and its uniqueness is that it allows using smart contracts and DApps without any glitch or scam. It also regulates interaction from third parties and does not give downtime. Litecoin, another form of cryptocurrency, began in 2011, and it rose to be silver to bitcoin's gold. This is so due to being very similar to bitcoin, only that it has a quicker transaction rate.

 One vital point to bear in mind is that cryptocurrency transactions are taxed, although they are decentralised. Although they're not controlled and regulated by a central authority or the government, it does not mean the individual isn't required to pay tax if it invests in cryptos. As per laws, any income in India is to be brought under the purview of the income tax. Like any other investment, profits gained by investing in cryptocurrencies will also be subjected to capital gains tax under the Income Tax Act. Depending on the individual's holding duration, it can be classified as long term or short term capital gains, and at times it also can be classified under income from other sources in their returns. The fact does remain that whether cryptocurrency is a currency or commodity is still vague. Until there's no precise regulation governing the market, one can't say how these assets will be taxed.

                                       the preliminary tips

Key Points

Why Are Cryptocurrencies So Popular In India?

Cryptocurrencies appeal to investors for a variety of reasons. The demand and popularity for them have steadily grown in India. Following are a few of the reasons why cryptocurrencies are popular:

  1. No Involvement of Human 

Cryptocurrencies are most preferable for online international transactions because no glitches occur whatsoever. Being a decentralized digital currency, there's no requirement to go through any government body when partaking in any international financial transaction. One can foster any business interactions without the interference of any government body, which may have some issues taking businesses internationally. With cryptocurrency, one doesn't need to worry about getting denied access to some funding due to government regulations, because it doesn't apply. Due to this, such a kind of currency is being reckoned all over the world.

  1. Ease of use and transparency

In the monetary markets, cryptocurrency has the same dynamics as equities. Since cryptocurrencies costs are being traded within the market, at some point there could be a possibility for individuals to make investments and have interaction in arbitrage by making use of blockchain technology. This gives better returns when compared to varied investments, enabling individuals to plunge into the advantages of crypto. Due to its usefulness, cryptocurrency has given birth to several startups and has made various companies develop software programs for the blockchain to be used in our digital age. This has resulted in encouraging recognition and acceptance of crypto in our digital society.

  1. Secured transaction

Experts identify cryptocurrencies and the blockchain as unhackable. Since cryptocurrency functions on the blockchain, cryptocurrency prevents fee scam, as data is available to everyone, promoting transparency. Using a shared ledger, cryptocurrency nurtures immunity to any sort of tampering, and all data shared is accurate and gets updated easily second. Thus, this reduces the possibility of frauds. Furthermore, as soon as a cryptocurrency transfer has been confirmed, the transaction can not be reversed, unlike credit cards wherein hacks attached. This safety measure in opposition to fraud, reveals that there is proper management of transactions without any interference and manipulation of a third-party. It also protects the person's identity who's making the transaction, this further proves the fact that it's unhackable.

  1. Speed of transaction

Cryptocurrency has a very fast means of transaction, as fast as light! At a time without any errors whatsoever it can also do multiple transactions. For this reason, professionals have embraced this method of transaction because it enables businesses to move as quickly as possible. With the immense rise in acceptance of cryptocurrency, it has soared so much that now it's believed to be the best means of transaction in our digital age. 

                           forms of cryptocurrency

Are Cryptocurrencies Legal In India?

Due to cryptocurrency's usefulness on the rise in China, it has spread through all of Asia, including India. India has actively been using cryptocurrency as one of the major means of online transaction. When the acceptance of cryptocurrency was at its peak, India's federal government planned to ban the trading in this currency. The Reserve Bank of India (RBI) was worried about the investors' protection, the anonymity of cryptocurrency transactions, and the lack of fundamental values of the currency because they are not backed by any assets. The government felt this might allow a new standard of scamming and internet fraud to occur.

The RBI did ban the commercial banks from servicing crypto to traders and exchanges in 2018, however, in March 2020, India's Supreme Court overruled the ban after much solicitation, and it happened just when the coronavirus pandemic hit the world. Due to this pandemic, most parts of India experienced lockdown and movement was restricted. This act led to the sharp growth of using cryptocurrency in the country once again.

The Top 5 Cryptocurrencies To Invest In India 2021

                                      cryptocurrency types

1. Bitcoin (BTC)

As per the Bitcoin India review, Bitcoin has always remained at the top, sustaining its status in the crypto space. It is the oldest and the most popular cryptocurrency ever, having the highest demand amongst the global cryptizens. Since the Bitcoin supply is scarce with 21 million, out of which approximately three million are left to mine only, it is considered as an asset for Bitcoin investment in India. Out of all the cryptocurrencies, in general, most people are aware of Bitcoin even though they're not totally into it. On a global scale, BTC has the highest adoption rate as compared to others. Experts have stated that in 2021, this is the best cryptocurrency to invest in with just Rs. 100. 

2. Ethereum (ETH)

After Bitcoin, Ethereum is known to be the second-largest cryptocurrency and one of the promising long-term altcoins available in the market. Founded in 2017, Ethereum has become a popular choice amongst business people because it integrates smart contract protocols into its blockchain. Ethereum displays high signs of volatility and it is almost touching the $200 mark. In India for 2021, this is claimed to be one of the best cryptocurrency.

3. Ripple (XRP)

The third-largest cryptocurrency that is having great demand by Indian users is Ripple (XRP). For banking and financial institutions, XRP is the hot choice for the go-to blockchain.

In the future, XRP may be used as an intermediary for quick transaction-processing times and cross-border partnerships. It also has great potential for future achievements, hence, as per the cryptocurrency news India, XRP can be fruitful for return on investment.

4. Litecoin (LTC)

The world’s first open-sourced P2P altcoin which has sustained its positional consistency by market capitalization is Litecoin. Litecoin, a branch of Bitcoin, is claimed to be the seventh-largest cryptocurrency in the world. It enables near-zero, instant cost payments to people in the world. It is the most favoured cryptocurrencies by users in India because of its improved storage efficiency and quicker transaction confirmation times.

5. Binance Coin (BNB)

Binance is termed to be one of the world’s leading cryptocurrency exchanges, that also owns the popular coins known as Binance Coin (BNB). BNB comes under the top 10 cryptocurrencies in the world by market cap. It has high liquidity along with being one of the assets that are superior in cryptocurrency trading. in the long run, BNB offers great prospects because it increases steadily at times of turmoil, too. 

How To Protect Yourself While Purchasing Cryptocurrency?

If you’re considering to purchase a cryptocurrency in an ICO, it's advised to read thoroughly what is being stated in the company’s prospectus for this information:

Indeed it can be a tough task to read through a prospectus that has all the details at length but that's a positive sign, it shows how legitimate it is. However, legitimacy doesn’t mean that the currency will succeed- that is entirely a separate question, and it also requires a lot of market savvy. Going beyond those concerns, simply having cryptocurrency does put you on the radar and exposes you to the risks of theft because hackers are always trying to penetrate the computer networks which maintain your assets. 

How To Avoid Cryptocurrency Scams

Scammers are always hunting for new ways to steal an individual's money using cryptocurrency. A definite sign of a scam is when someone says that you have to pay by cryptocurrency. Therefore, whenever someone tells to pay by gift card, wire transfer, or cryptocurrency it can be predicted that the person could be a scammer. Naturally, if you do pay then there's almost no way to get the money back, and that is what the scammers are counting on. 

Following are a few cryptocurrency scams to watch out for:

Investment and business opportunity scams 

Following are some claims that can help you spot the companies and people to avoid:

Thus, before you begin to invest, do thorough checking and research online for the names of the company and of cryptocurrencies. Also search words like “review,” “scam,” or “complaint.” Get to know what others have to say and read a lot about other common investment scams.

Blackmail emails 

Most of the time scammers will first send out emails stating that they have embarrassing or compromising photos, videos, or personal information about you. Then, they will threaten to make it public unless you pay them in cryptocurrency. Don’t fall for this. This is blackmail and a criminal extortion attempt. You must immediately report it to the police or FBI.

Social media scams

Whenever you read a text, tweet, email, or receive a message on social media that instructs you to send cryptocurrency, it’s a scam. Even if the message has come from a known person, or was posted by a celebrity you follow. Someone might have hacked their social media accounts. Thus, it's vital to immediately report the scam to the social media platform and then inform the police who tackle cyber issues and crimes.

                                   crypto currency

How Much To Invest?

One of the first questions that might pop up in an individual's mind once it decides to begin investing in cryptocurrency will be how much to invest as a beginner? Well, the answer is that there is no rule by books that states how much amount of investment to begin with. Experts advise that it's wise to start small by taking one step at a time. For example, since Bitcoin is divisible up to eight decimals, you can and must seek to buy small fractions on an initial basis. 

Conclusion

In conclusion, the concept of cryptocurrencies is still an alien for various people in India and it will likely remain so until regulations and categorizations aren't set up. Since such digital currencies aren't yet mainstream in India, adoption of them depends on informing and educating potential investors. In the meantime, those seeking to secure an early piece of the share can have the chance of exploring this new technology of investment space before entering it at their discretion.

Day by day the market is booming with digital currencies and one should explore crypto graphs before choosing the cryptocurrency it desires to invest in. With more than 8000 cryptocurrencies in the market with volatile and dynamic values, there can be a possibility of experiencing a crypto hype "crypto craze" in 2021.

Fintra advices that as a beginner, as a rule of thumb, do check the various platforms which record cryptocurrencies' values. These platforms will assist you to create a clear sketch of definitive cryptocurrencies' persistent values along with their market competitions. Fintra aims to be one such platform to assist in screening the values of cryptocurrencies.

In 2021, investing in cryptocurrency could be quite tricky due to the crypto market's volatile and dynamic nature. However, with this recent revolution in digital currency along with the need for digital financial platforms to meet contemporary exchange demands, investing in cryptocurrency is believed to be a profitable way of earning.

                                       cryptocurrency exchanges in India

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