PremiumFollowing the RBI’s order lifting the blanket ban on cryptocurrency payments, a large number of Indian investors have taken up cryptocurrency transactions. As the trend gains traction, Mint explains the key concepts associated with the trade of bitcoins
Following the Reserve Bank of India’s order lifting the blanket ban on cryptocurrency payments, a large number of Indian investors have taken up cryptocurrency transactions. As the trend gains traction, Mint explains the key concepts associated with the trade of bitcoins
How far along is bitcoin in the crypto world?
With a market capitalization of $350 billion, bitcoin is the largest cryptocurrency in the world. It was launched in 2009 amid the global financial crisis. Additional units of bitcoin are created by computers solving mathematical puzzles, which get difficult with the units’ addition. A distinctive feature of bitcoin is that a record of all transactions is held in a public ledger maintained simultaneously across thousands of computers. This is in contrast to records of traditional currencies held in bank servers or records of land held in government offices. As per bitcoin proponents, the latter are prone to to manipulation or hacking.
What kind of returns has the bitcoin given?
Bitcoin was primarily used by tech professionals or freelancers to receive small payments in its initial years. It became prominent as an investment product in 2017 when its price went up 20 times, peaking at just under $20,000 ( ₹12.6 lakh) in December 2017. It subsequently crashed to around ₹2.3 lakh per unit in December 2018. However, 2020 has seen a sharp rebound in bitcoin price after a dip in March, due to covid. It has now overtaken its previous high of ₹12.6 lakh and currently trades at ₹13.97 lakh per bitcoin. Depreciation of the rupee against other currencies has also hastened the rise in bitcoin prices in rupee terms.
Is the cyrptocurrency legal in India, to carry out trade?
Investment in cryptocurrency is neither explicitly legalized nor prohibited in India. An RBI ban on crypto payments in 2018 was overturned by the Supreme Court in March. Media reports said a draft bill banning all cryptocurrencies was in the works in 2019, but was never tabled in the Parliament. Lawyers say a crypto ban is unlikely to pass the test of constitutionality.
What are the risks associated with it?
Unlike a stock which derives its value from the profits of a company or a bond which fetches interest, bitcoin does not have any intrinsic value. Proponents argue that investors place their money in a variety of assets, such as gold, which also have no intrinsic value. The wild swings in the price of bitcoin can also be stressful. But, there has been greater adoption of cryptocurrencies the world over. In a major breakthrough, PayPal Holdings Inc, in October, allowed its users to hold cryptocurrency in their wallets.
How does an investor buy or sell bitcoins?
One can transact through a crypto exchange or directly with another person online (peer-to-peer). The latter mechanism is riskier and can also be misused by scamsters. Exchanges also aren’t regulated, but their presence in India brings them under the civil and criminal laws, such as the Contract Act, 1872 and the Indian Penal Code, 1860. While choosing one, check for registered addresses and if the exchange is incorporated under Indian law. Some exchanges have also embraced KYC and anti-money-laundering procedures.
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