Ever since Finance Minister Nirmala Sitharaman talked about digital currencies in her budget speech earlier this month, curiosity about it has grown by leaps and bounds.
Digital currencies have been around for quite some time now and people are resorting to the new currency often all over the world. Many experts have also been optimistic about the future of cryptocurrencies.
Since Bitcoin does not rely on intermediaries, it can reduce transaction costs for businesses and become a major means of processing electronic payments.
Bitcoin has obvious growth potential given these attributes. Of course, virtual currencies, like traditional currencies, can also be used for money laundering and other criminal activities. However, chances are akin to the physical world.
Bitcoin is the first name that comes to mind when talking about cryptocurrency. However, there are a few other virtual currencies like Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Polkadot (DOT), Stellar (XLM), Dogecoin (DOGE) etc.
Here is how you can invest in cryptocurrencies:
The acquisition of currencies involves:
(i) Careful selection of cryptocurrency as the market for such virtual currencies is volatile and totally influenced by market conditions as it is usually purchased for the purpose of investments.
(ii) To find the cryptocurrency exchange. There are many cryptocurrency exchanges, but not all exchanges work in all countries. Different exchanges also offer different types of cryptocurrencies, accept different payment methods, and charge different fees.
(iii) Open a trading account
(iv) Save payment method
(v) Then place the order to acquire the cryptocurrency as per your choice.
Now you decide whether to spend or hold the currency like the stock market. Whether you create the wallet. Use cryptocurrency for purchases from online retailers or purchase goods or services from local merchants who accept cryptocurrency.
The future of cryptocurrency:
Virtual currency speculators believe that digital currency is the future. Because it can be used to meet daily payment needs like other modes i.e. cash, cards and other digital wallet if the government allows it. Cryptocurrency facilitates much faster than any other mode of payment at minimal cost across the globe. The cryptocurrency user believes that if this happens, there will also come a day when cryptocurrency will replace the traditional payment system and can serve as an alternative to national fiat currency and traditional commodities like gold.
In the Union Budget Speech 2022-23, the Minister of Finance mentioned that income from digital virtual assets or crypto will be taxed. This announcement raised some hope among cryptocurrency investors, as they believe that this decision to tax them is explicitly a clear sign of legalization in the future.
The government will charge a flat 30% tax (plus surcharge) on the gain on the cryptocurrency transaction. As is the nature of speculation, no deductions are allowed in calculating profit. If there is a loss in such a transaction, it cannot be offset against any other income and cannot be carried forward. However, current year losses may be offset against current year profit from such transactions.
To control these transactions, there is the provision of withholding tax (TDS) @ 1 percent. The gift of cryptocurrency is also taxable in the hands of the recipient. All provisions are applicable from April 1, 2022.
The introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is therefore proposed to introduce the digital rupee, using blockchain and other technologies, which will be issued by the Reserve Bank of India from 2022-23. This may allay RBI’s concerns about private cryptocurrencies, saying they could create financial instability.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)