All you need to know to start buying bitcoins in India
Cryptocurrency is all the hype these days with innumerable currencies coming up everyday from everywhere, and social media going berserk over how influential people are dictating the prices and the market with so little as their social media activity? But all this hype can be traced back to 2009 when the first digital currency bitcoin hit the markets, and is today the largest cryptocurrency by market capitalization ($713 Billion). Today we try to decode what cryptocurrency and bitcoin really are and how you can invest in Bitcoin from India.
What is cryptocurrency?
Essentially cryptocurrencies form the basis of an alternative finance system that is based on a digital ledger system called blockchain. Cryptocurrency’s biggest advantage is that it is based on completely open source platforms and is free from any centralised governance. To learn more about cryptocurrency
Now that you know what Cryptocurrencies like bitcoin are, how do you really go ahead and buy them? What are the mechanisms to invest in bitcoin in india?
– A secure, private wifi or internet connection so that you are not exposed to cyber attacks during these transactions. A VPN can be used to make the process even more secure. It is strongly recommended to not use a public network while making any kind of financial transactions.
– Aadhar and Pan card for KYC
– A mobile phone to successfully complete the verification and two factor authentication process
– A wallet to safely secure your Bitcoins. While most platforms provide their own highly secure wallets, you can also choose another wallet as per your convenience
How to pick a platform to buy your crypto currency?
There are numerous players in the cryptocurrency platform market today. However, picking a secure and reliable platform is very important to ensure the safety of your money and investments. Here are some pointers on evaluating a trading platform:
a. Volume Handled:
– The number of customers a platform has and the volume of trades or money it handles in a day is a strong metric of its performance and reliability. The higher these numbers are the better!
– Location of holding of your assets: The country in which your crypto wallet is registered decides the laws that will apply to your holding with respect to taxation. In India income tax needs to be paid on cryptocurrency gains, however this may not be the case in many countries such as Singapore where no capital gains tax exists. Hence make sure to figure out where your Bitcoins are being held
b. Past track record:
– Make sure that the platform you choose does not have any major cases against it, or hasn’t been subject to safety scrutiny/ cyber attacks as these might lead to loss/ blockage of your investments in bitcoins.
c. Platform Fees:
– Different platforms charge different fees for registration, brokerage, trading etc. Make sure to evaluate all your options and pick a platform that is both reasonably cheap and secure.
Popular Platforms to buy crypto on in India
– It was started in 2017 and is now backed by Binance. Its plus points include a safe wallet, easy to use charting tools, simple UI that makes it easy for anyone to trade on this platform and a very low fee of only about 0.2%
– Started in 2015 out of Singapore, this platform is regarded as one of the most secure and reliable crypto trading platforms.
3. Coin Switch:
– Liquidity is a major problem while trading relatively lesser known crypto currencies. This problem is best tackled by Coin Switch in the indian market as it combines a simple UI with aggregated liquidity across multiple exchanges operational in India.
– One of the fastest growing crypto trading startups in India, this platform provides the most seamless and cheapest conversion from fiat to crypto currency. It is also known for its cutting edge security
To learn about more crypto trading platforms
How to buy Bitcoins?
You don’t need to buy an entire bitcoin! You can buy fractions of it. A bitcoin as on June 26th costs around INR 22.8 lakh and hence it is impossible for everyone to buy it. Fortunately, you can invest in very small fractions of a bitcoin, and your investments can be as small as 100 Rupees.
a. Pick an exchange platform:
Due to the lack of regulations, it is very easy to get stuck in a scam in the crypto world at the moment. Hence it is the investor’s responsibility to check the platform he picks for trading. Platforms like Binance, Zerodha and WazirX are the most popular and Trust-worthy ones in the indian markets right now.
b. Opening account:
After you have picked your platform, you will need to download the app, open an account, complete the KYC requirements and link your bank account to make transactions. Once all this is completed, you are good to go ahead and buy your first bitcoin.
c. Placing orders:
Once your account is set and you have money in your crypto trading account, you can now decide to place an order based on your planned investment and the current trading price of the currency. If there is a seller available at the price you are willing to offer, your order will be executed and you will now be the owner to that block of cryptocurrency.
Now that we have covered how you can open the account and buy bitcoin, let’s talk about an importact aspect of buying bitcoins – price of bitcoin! Have you ever wondered – why, at any given time, is the price of bitcoin slightly different across platforms in India or around the globe?
Cryptocurrencies are not traded on a centralised exchange, nor is there a mechanism to give them a fixed price at regular intervals of time (unlike shares which are traded in specific stock exchanges). Bitcoin is also not pegged to a currency or commodity like some other cryptocurrencies. Bitcoins are traded on multiple exchanges at the same time and hence its valuation is based on an average price estimate which can vary on different platforms.
Another important factor to note before you start buying bitcoins through any of the exchanges mentioned above is to know how would your bitcoins be storred post the purhcase. Once you have bought your bitcoins, how do you store them? How do you ensure that your crypto assets are safe and secure?
There are 2 broad kinds of crypto wallets:
1. Hot Wallets: There are wallets that are always connected to the internet. These wallets are the more user friendly option in the market and provide seamless almost instant transactions that are sufficiently safe if your holdings are small and you need to trade of access your crypto on a regular Basis
2. Cold (Hardware) Wallets: These wallets store your crypto offline or on a paper trail. They are much more secure owing to the fact that they are not connected to the network and hence do not share your information in any form with the internet. However, due to their higher charges, they are the practical option only when your holdings are large and you intend on keeping your cryptocurrency for a long period of time.
Buying through exchanges are not the only ways you can get hold of bitcoin. There are other ways to obtain bitcoin (if not buy) in India:
1 Receiving through P2P exchange:
Unlike Trading platforms where many buyers and sellers interact anonymously Peer to peer exchanges let you buy bitcoins more locally with someone around you or someone you might know. It works on a relatively simpler basis and is essentially just a platform where you can locally buy or sell your cryptocurrency
2. Payments made using bitcoin:
Owing to its popularity, security and reliability, bitcoin is globally becoming a widely accepted medium for exchange. In many parts of the world now it is very common for people to accept payments in the form of bitcoins or many other cryptocurrencies in exchange for their goods or services.
While we have covered how you buy bitcoins, its also important to know how you can sell bitcoins. Selling your bitcoins follows almost a similar procedure as buying and can be done using the same exchange platforms or P2P marketplaces. When there is a buyer at the price you are willing to sell, a trade is executed, making the sale successful. Platforms may charge you for these transactions depending on their own user policy so make sure to learn about it before going ahead and picking your preferred Cryptocurrency exchange platform.
Finally, we should cover two major aspects of buying & dealing with bitcoin in India – legality of bitcoin and the applicable taxes.
Legality of Buying Bitcoins in India:
Bitcoins do not have a regulatory system in place and hence conflicts might arise in regular transactions using crypto. However, in 2020 the Supreme Court of India explicitly said that even though crypto currencies are unregulated, they are not illegal. Hence using Bitcoin is essentially at your risk. However, at the moment it is completely legal to buy Bitcoin or any other Cryptocurrency.
Since the RBI has not declared crypto as a tender and gains made from trading crypto currently do not fall under any tax exemption classes, These gains are taxable in India. They can be taxed as business income if you trade short term and enter your earnings as business revenue, the applicable income tax slab will then apply to you according to the amount of your gains.
Otherwise they can be taxed as capital gains if you plan on holding your positions for long periods of time.
How to buy bitcoin in India – Frequently Asked Questions (FAQ)
1. How can one acquire bitcoin?
Bitcoins can be procured by:
a. Competitive bitcoin mining
b. Exchanging bitcoins on with someone around you
c. Buying bitcoins from a trading platform
2. What is Bitcoin Mining?
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also a critical component of the maintenance and development of the blockchain ledger. It is analogous to a modern day highly sophisticated gold rush. Miners get paid for their work as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions.