Want To Buy Bitcoin: Must Read This

You Must Understand Bitcoin Before Investing Into It

If you are reading these lines, there are high chances that you must have heard about bitcoin. It is a cryptocurrency or digital currency and is used as a payment system as well in many parts of the world (But not in India as yet). It was established in 2009 by Satoshi Nakamoto. But it has no central bank or regulatory authority supporting it. You must know that the it doesn’t exist in physical form. It is made by computers and stored in a digital wallet.

Bitcoin 1

Is Bitcoin The Only Cryptocurrency

Though bitcoin is not the only cryptocurrency, but it is the first one and has a major share in cryptocurrency market. Due to its high volatility, its price has fluctuated wildy. At its peak in the beginning of September 2017, each bitcoin was valued around $5,000. On 11th October, its value was worth Rs. 3.10 lakh in India. The digital payment system involved in cryptocurrencies is peer-to-peer. It means users of digital currencies can transact directly without any intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain. Apart from bitcoin, some of the other cryptocurrencies are: litecoin, peercoin, namecoin, primecoin and ether. 

Is Bitcoin Legal And Regulated in India

Virtual currecny or digital currency is not recognised by Reserve Bank of India so far. In fact, RBI has issued multiple circulars cautioning the users of Virtual Currencies. On 1st February 2017, RBI issued a notice. It said that “The Reserve Bank of India advises that it has not given any licence /authorisation to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk”. Unless it is properly regulated and monitored by the government or banks, it’s unlikely that digital currency become a mainstream currency in India. An argument against crypto currencies is that black money can proliferate easily with their use. People can automatically convert all earnings in dollars outside the country into a crypto currency which can be used within the country or outside where it is accepted.
But India has not banned digital currencies explicitly. Therefore, in India too, bitcoin has gained popularity. There are many dedicated Indian websites which offer you the service of buying and selling bitcoin on their platform. Some of them are Zebpay.com, Coinsecure.in & Unocoin.com. According to a report, the number of companies dealing in crypto currency in India has grown from 4 in the year 2013 to 20 now. 

Why Bitcoin Is Becoming Popular

According to a research by Cambridge University this year, there are almost 60 lakh individuals worldwide, who are using a cryptocurrency wallet. Many countries have started giving it and other cryptocurrencies a recognition. These include USA, European Union, Japan & Singapore. In USA, Coinbase launched the first regulated bitcoin exchange. From 1st April, 2017, Japan has officially recognised bitcoin and digital currencies as money. It means that these can be used as legal tender in Japan. This year has proved to be a landmark for bitcoin as the value of one unit has increased from $968 in January to almost $5,000 now. So investors have gained almost five-fold returns in this.
And, rising prices are attracting investors and traders in India as well. Bitcoin exchange Unocoin has around 5 lakh customers. Another exchange Zebpay has succeeded to attract a million users. Some users have started investing small amount per month in it. In fact, it is viewed as an alternative asset class.

How Can One Buy Bitcoin

Bitcoin can be purchased online and stored in digital wallet. You can choose any bitcoin exchange to find the wallet. These wallet can be selected based on features and security provided by the exchange. After that, you can create your account by registering on the selected exchange. This will give you a secure place to store your bitcoin, and easy payment methods to convert your amount into or out of it. You will have to link your bank account with wallet. After completing verification process, you can start using your account to purchase bitcoins. On some of the exchanges, you may purchase through credit or debit cards as well. There is a KYC requirement and you need to verify your identity by uploading the image of your PAN card.

Risks Associated With Investment In Bitcoin

  1. The first and foremost risk is that it is not regulated. It means that in case of any fraud, you can’t approach any grievance body or regulator.
  2. Second risk is that Bitcoin transactions are irreversible. Remember that your digital wallet can be opened only by username and password. In case you forget the password, your money inside the wallet will be worthless. This is because of the reason that the password of Bitcoin wallet is irrecoverable.
  3. Third risk is the high volatile nature of the digital currency. The uncertainty with which its trading is happening all over the world, makes it a highly risky asset class. That’s why electronic payments expert Dave Birch has said that “one doesn’t invest in bitcoin, one gambles on it”. Remember that the value of crypto currency is determined by perception. While determining the value, the factors like technology, popularity, security and understanding of e-money are considered. 

Also read: PF is an investment tool which is best for risk averse investors. Know various types of PF where you can invest. 

How To Do Safe Investment In Bitcoin

It is highly advisable for anyone planning to buy the bitcoin that he should only invest as much as he is prepared to lose. You can start small. For instance, you can start by investing 2 to 3 per cent of your total investment corpus.

Also never disclose your user name or password of your digital currency wallet. You should add one extra layer or protection by creating a backup of storing cryptocurrencies. You can store them in an offline wallet like an SD card.

Last but not the least thing, which I would say that with bitcoin you may hit jackpot but at the same time chances are there that you can bite the dust. So do all the due diligence before investment. And, if you do have any question or doubt about it, just ask me. I will be happy to help.

2 comments

  • One question- I was watching a tax show on CNBC. The expert said you have to pay tax on Bitcoin income. if it is not legal how is it possible for goverment to collect tax on it.

    • dheeraj

      Dear Dipanshu,
      Though Bitcoin is not legal but it’s not illegal as well. And, the income tax act says that whatever income you earn, you will have to pay tax on that according to the rules and slabs. And, in bitcoin trading in India, the bitcoin exchanges complete your KYC before transactions. It means that you bank account details and PAN are known to them and they would have to pass the financial information to the government, if required. So if you are a bitcoin trader, it is always in your interest to pay tax on your income.

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