Crypto 101

Bitcoin, created in 2009 by an anonymous individual or group of individuals known as Satoshi Nakamoto, was the first cryptocurrency to gain widespread attention. Since then, thousands of other cryptocurrencies have been created, each with its own unique features and capabilities.

Known for their extreme volatility, cryptocurrencies have recently become an interesting talking point for Twitter threadbois (Elon and Doge, anyone?) and finance gurus on LinkedIn.

What’s a cryptocurrency?

In simple words: a digital form of cash. You can use it to make payments to people (if they agree?!) and to businesses that accept crypto as a mode of payment. As it currently stands, it’s not widely accepted in most parts of the world.

Theoretically, it is a much faster and cheaper way to pay someone across countries as compared to transferring money through a bank wire-transfer.

How do cryptocurrencies work?

Cryptocurrencies use cryptographic techniques to secure their transactions and control the creation of new units.

They are decentralized, meaning that they are not controlled by any central authority like a government or financial institution.

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Behind The Scenes They work using a decentralized network of computers to verify and process transactions. These computers are known as nodes, and they work together to create a distributed ledger called a blockchain. A blockchain is a digital ledger that records every transaction made with a particular cryptocurrency. When a user initiates a cryptocurrency transaction, it is broadcast to the network of computers running the blockchain software. These computers then verify the transaction and add it to a block of other transactions on the blockchain. The block is then added to the existing chain of blocks, creating a permanent and unalterable record of the transaction.

Volatile and risky

Known for their extreme volatility, several cryptocurrencies have taken a severe beating in the post-pandemic era, leading to widespread speculation about their legality.

The crypto market is also largely unregulated, meaning there are fewer protections for investors as compared to traditional assets.

Now taxed in India

Last year, the finance ministry of India introduced a tax on “Virtual Digital Assets” that largely include cryptocurrencies and non-fungible tokens (NFTs).

A 30% tax is now levied on profits from trading, selling, or spending cryptocurrencies, and 1% TDS is deducted on the transfer of VDAs exceeding ₹50,000 in value.

Investing in Crypto

Governments across the globe have had a negative or at best neutral stance towards cryptocurrencies, making it a highly risky asset to invest or trade in.

If you are still thinking about having crypto in your portfolio, we’d suggest only putting in money that you are willing to part ways with.