Cryptocurrency is a digital or virtual currency that uses cryptography to verify transactions, which makes counterfeiting and double-spending practically impossible. Cryptocurrencies are not regulated or facilitated by a central or regulating authority, instead it uses decentralized network called blockchain technology. Since cryptocurrency are not issued by any central authority, it makes them theoretically immune to government interference or manipulation.
The first cryptocurrency named Bitcoin was invented by an unknown person or a group of people named Satoshi Nakamoto in 2008. It was put into use in 2009 when the currency’s implementation was released as open-source software.
Cryptocurrencies are based on the blockchain, a distributed public database that keeps track of all transactions and is updated by currency holders.
Cryptocurrency units are formed through a process known as mining, which entails employing computer processing power to solve complex mathematical problems in order to earn coins. Users can also purchase the currencies from brokers, which they can then store and spend using encrypted wallets.
You don’t possess anything concrete if you own cryptocurrency. What you possess is a key that enables you to transfer a record or a unit of measurement from one person to another without the involvement of a trustworthy third party. Although Bitcoin has been present since 2009, cryptocurrencies and blockchain technologies are still in their infancy in terms of financial applications, with more to come in the future. Bonds, stocks, and other financial assets might all be traded via the technology in the future.
Types of Cryptocurrency
As mentioned earlier, Bitcoin was invented in 2008 and is the first cryptocurrency that was invented. Bitcoin is still the most popular and well-known crypto currency.
Ethereum is a blockchain platform that has its own cryptocurrency, Ether (ETH) or Ethereum. It was created in 2015. After Bitcoin, it is the most widely used cryptocurrency.
This money is quite similar to bitcoin, but it has moved faster to build new innovations, such as speedier payments and processes that allow for more transactions.
Ripple was founded in 2012 as a distributed ledger technology. Not only can Ripple be used to track cryptocurrency transactions, but it can also be used to track other types of transactions. Its creators have collaborated with a number of banks and financial institutions.
How to buy cryptocurrency?
There are 3 steps involved in purchasing of cryptocurrency. Please find them below:
Step 1: Choosing a platform
Before choosing a platform, compare various platforms on the basis of which cryptocurrencies are on offer, what fees they charge, their security features, storage and withdrawal options, and any educational resources. Typically, there are two main platforms which one can choose for trading of cryptocurrency:-
- Traditional brokers: These are online brokers that allow you to purchase and sell cryptocurrencies as well as other financial assets such as stocks, bonds, and exchange-traded funds (ETFs). These platforms are known for having reduced trading fees but fewer crypto features.
- Cryptocurrency exchanges: There are a variety of cryptocurrency exchanges to choose from, each with its own set of cryptocurrencies, wallet storage options, interest-bearing account options, and other features. Asset-based fees are charged by several exchanges.
Step 2: Funding your account
After you’ve decided on a platform, you’ll need to fund your account before you can start trading. Most crypto exchanges allow users to buy crypto with fiat (government-issued) currencies like the US Dollar, British Pound, or Euro using their debit or credit cards, though this varies per platform.
ACH and wire transfers are also accepted by some sites. The payment methods that are accepted and the time it takes to deposit or withdraw money vary each platform. Likewise, the time it takes for deposits to clear varies depending on the payment type.
Fees are an essential consideration. These fees could include transaction fees for deposits and withdrawals, as well as trading fees. Fees will vary depending on the payment method and platform, so do your homework ahead of time.
Step 3: Placing an order
You can use the web or mobile platform of your broker or exchange to make an order. If you wish to buy cryptocurrencies, go to “buy,” select the order type, enter the number of coins you want to buy, and confirm the order. Orders to “sell” follow the same procedure.
There are other ways to invest in cryptocurrency as well. PayPal, Cash App, and Venmo are examples of payment platforms that allow customers to buy, trade, or store cryptocurrencies. In addition, the following investment vehicles are available:
- Bitcoin trusts: Bitcoin trusts can be purchased with a conventional brokerage account. Through the stock market, these vehicles provide regular investors with access to cryptocurrency.
- Bitcoin mutual funds: You can select between Bitcoin ETFs and Bitcoin mutual funds.
- Blockchain stocks or ETFs: Blockchain companies that specialize in the technology behind crypto and crypto transactions are another way to indirectly invest in crypto. Alternatively, you might invest in blockchain-related equities or exchange-traded funds (ETFs).
How to store cryptocurrency?
Once you’ve purchased cryptocurrency, you’ll need to keep it safe to avoid being hacked or stolen. Cryptocurrencies are typically stored in crypto wallets, which are physical devices or online software that securely store the private keys to your cryptocurrencies. Some exchanges offer wallet services, allowing you to store your funds directly on the platform. However, not all exchanges or brokers will automatically give you with a wallet.
There are a variety of wallet providers from which you can choose. The terms “hot wallet” and “cold wallet” are used to describe two types of wallets-
- Hot wallet storage: “Hot wallets” refers to cryptocurrency storage that use internet software to safeguard your assets’ private keys.
- Cold wallet storage: Unlike hot wallets, cold wallets (also known as hardware wallets) save your private keys on offline electronic devices.
Cold wallets typically charge fees, whereas hot wallets do not.
Union Budget 2022 and Cryptocurrency
- In the Union Budget 2022-23, the government has imposed a 30 percent fixed tax rate on all crypto trading profits, with the goal of introducing the Digital Rupee in 2022–23.
- The Digital Rupee, India’s first Central Bank Digital Currency (CBDC) project, will be a digital version of the rupee that would be fully regulated and overseen by the government.
- The Finance Ministry has suggested a 30% tax on the trading of all virtual assets, including cryptocurrencies and non-fungible tokens, in these regulations. Losses on these crypto-assets cannot be offset at a later point, according to the report. This means that any losses incurred when trading these assets will not be offset by other sources of income and will be carried forward to later years.
- Virtual currency gifts are likewise subject to taxation, with the recipient carrying the burden of any such deductions.
- Further elaborating on the taxes approach for such virtual currencies, the Finance Minister stated that all crypto transfers exceeding a specific monetary level will be subject to a 1% TDS deduction, which will aid the authorities in keeping track of their movement in the economy.