You've probably heard of the term "cryptocurrency" unless you're not closely following recent trends.These digital assets have taken the world by storm, yielding massive returns for investors when compared to traditional assets like stocks or index funds.
As an example, Bitcoin (BTC)'s price grew by a whopping 155% from the start till the end of 2023. Such high returns naturally get the attention of investors looking to add to their wealth. But before you jump on this train, it makes sense to get a lay of the land.
In this article, we'll highlight the advantages and disadvantages of crypto investing in India. This will allow you to make an informed decision about whether to invest in this blossoming asset class or not.
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But before we dive in, let's understand what are cryptocurrency actually is.
What is a Cryptocurrency?
Cryptocurrency, a type of digital or virtual money that comes in thousands of varieties, operates on blockchain technology.Think of blockchain as a decentralized ledger that records monetary transactions, i.e., who paid what and to whom. Being decentralized means the transactions take place without the need for a central authority or intermediary like a bank or government. It also means the ledger is accessible to everyone, ensuring transparency and preventing fraud.
The term "blockchain" comes from the fact that the transactional data and other information are stored in "digital blocks" that are chained together. Once a block gets added to a chain, it's almost impossible to change or delete the data inside it.
The responsibility of validating transactions and adding blocks to the chain rests on a network of computers called nodes. These nodes maintain the public ledger and keep it going. An interesting property of this system is that if any one of these nodes fails, it doesn't affect the entire network. There is no single point of failure.
What can you do with cryptocurrencies? You can buy, sell, or trade them on exchanges. You can also use them to buy goods, invest, or send money across the globe quickly and with low fees. Popular examples include Bitcoin and Ethereum.
Advantages of Cryptocurrency in India
Now, let’s take a look at the advantages that cryptocurrencies offer:
Financial Inclusion
Cryptocurrency can provide financial services to the unbanked population in India. It offers easy entry into the financial world without the need for traditional banking infrastructure.
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Protection against Inflation
Cryptocurrency, like Bitcoin,, can protect against inflation. This is because there's a limit on how many can be made - for example, only 21 million Bitcoins will ever exist. As more money is printed, the value of these limited cryptocurrencies often goes up. This can help maintain their value over time, even when the value of regular money goes down due to inflation.
Remittance
Sending money overseas through cryptocurrency is faster and cheaper than traditional banking methods. This can benefit millions of Indians working abroad who send money home.
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Investment Opportunities
Cryptocurrency opens up new investment avenues for Indians. The prices of many fiat currencies decline due to inflation. Cryptocurrencies can act as a hedge against inflation. The secular trend for most of the large-cap cryptocurrencies is upward, meaning they're likely to increase in value over time.
And as we mentioned before, cryptocurrencies tend to generate some of the highest returns out of all financial assets.
Transactional Speed
Cryptocurrency transactions are very fast; they get finalized in a matter of minutes. This makes using crypto for payments quite compelling. For example, current methods of sending money to your loved ones abroad are slow. On the contrary, you could send Bitcoin or USDT to someone's wallet in a matter of minutes.
Decentralization
As we mentioned earlier, cryptocurrencies don't need an intermediary to facilitate transactions. Everything happens automatically via code.
Moreover, there is no central authority that can control the price of a coin. If a national government wants to artificially inflate the value of its fiat currency, it can print more money. But nobody can do the same for cryptocurrencies.
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Disadvantages of Cryptocurrency in India
Regulatory Challenges
Although gains from cryptocurrency investing and trading are taxed in India, the legal status of cryptocurrency in India is uncertain. This creates challenges for users and businesses in the crypto space.
Volatility
Cryptocurrencies are known for their drastic price swings. This volatility can result in significant losses for investors.
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Risk of Fraud and Scams
The world of cryptocurrencies tends to attract scammers and fraudsters. Investors need to be cautious when putting their money into a coin or token. Always research the project thoroughly before making an investing decision.
High Power Consumption
Bitcoin, the world's largest cryptocurrency, uses the Proof of Work (PoW) consensus mechanism to add new blocks to the chain. Without going into the details, PoW requires very powerful computers to validate pending blocks. And collectively, these nodes consume a ton of power, which isn't exactly good for the environment.
Impact on Traditional Banking
Cryptocurrency could disrupt traditional banking. Banks might lose their role in financial transactions, affecting the economy.
Government and Regulatory Responses
The Indian government has been cautious, introducing regulations to address the risks associated with cryptocurrency. These measures aim to protect investors and prevent illegal activities.
The Future of Cryptocurrency in India
The future of cryptocurrency in India looks promising but uncertain. It depends on how well the government and the crypto community can address challenges while harnessing the benefits.
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Is crypto legal in India?
Investing cryptocurrencies in India is completely legal. This became possible after a significant decision in 2020, when the Supreme Court of India overturned the Reserve Bank of India's (RBI) ban on cryptocurrency transactions. This landmark ruling was a major step forward for the crypto industry in India, paving the way for the growth of platforms like Mudrex, which offer services for trading and investing in cryptocurrencies.
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The lifting of the ban has led to a surge in interest and investment in cryptocurrencies across the country. People are now more open to exploring the potential of digital currencies, and there's an increasing number of platforms and services catering to this growing market.
Furthermore, the Indian government is actively working on creating a robust regulatory framework for cryptocurrencies. This is a crucial development, as it aims to provide clear guidelines and rules for the operation of cryptocurrency businesses, ensuring security and transparency in transactions. These regulations are expected to address various aspects of the crypto market, including consumer protection, anti-money laundering (AML)
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Conclusion
Cryptocurrency in India offers both opportunities and challenges. While it can promote financial inclusion and innovation, it also poses risks that need careful management. The balance between advantages and disadvantages will shape the future of cryptocurrency in India.
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(This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)
