The Fascinating World of Cryptocurrency: Should one buy crypto currency
Have you ever thought while wondering to yourself “Should I buy Crypto Currency?” Let’s see if you should. What exactly is it?
You need to pay your friend 1000 bucks who urgently needs money residing 1000 kilometers south of where you are currently living.
The bank servers over the internet are crashed, so you cannot pay them online either.
No UPI either to make a transfer! Don’t panic we have one more option to resort to……… Cryptocurrencies!
Wait, you’ve heard the term before, right?!
Oh okay you never used it?
CRYPTO-CURRENCIES: AN OVERVIEW
Eliminating the need for physical cash, CRYPTO-CURRENCY is a digital currency as a medium of trade between two parties. CRYPTO-CURRENCIES are not a physical form of note piles or coin piles but rather hosted on the internet and are absolutely virtual. Cryptography is used to legitimize transactions and safeguard them. It is also used to control the creation of new units of a particular digital currency. Different networks of computers create CRYPTO-CURRENCIES on blockchains, which are ledgers. Let’s see if you should really buy crypto currency.
TYPES OF CRYPTO CURRENCIES:
It is a digital asset that runs on the XRP Ledger, a blockchain-based payment system. XRP is designed by Ripple Labs to be a fast, cheap, and efficient way to transfer money internationally.
XRP is often referred to as a “cryptocurrency for banks” because it is designed to meet the needs of the financial services industry. Banks can use XRP to send and receive payments in different currencies quickly and cheaply. This can help them to save money on foreign exchange fees and to improve their liquidity.
XRP is also used by some individuals and businesses to make cross-border payments. However, it is not as widely used as Bitcoin or Ethereum for this purpose.
The future of XRP is uncertain. The SEC is currently suing Ripple Labs for allegedly selling unregistered securities. If the SEC is successful, it could have a significant impact on the price of XRP.
It is the world’s first cryptocurrency, was created in 2008 with its origins dating back to a white paper published that year. It remains the best-known type of crypto. Bitcoin functions on its own blockchain, with transactions verified and new Bitcoins created (up to a fixed cap) by an army of decentralized miners. In January 2022, Bitcoin had the largest market cap of any cryptocurrency, at US$896 billion.
Tether is a type of stablecoin that is designed to have a less-volatile price by being linked to an external asset, in this case the US dollar. Each coin is backed by an equivalent number of US dollars. This keeps Tether from experiencing the same kind of pricing volatility that other cryptocurrencies face. However, there is some debate about whether Tether is truly fully backed by the dollar.
USD coin is a stablecoin connected to the US dollar that cannot be mined. Unlike Tether, USD Coin has more transparent funding and better auditing processes. USD Coin aims to remove some of the risk associated with crypto by ensuring that users can always withdraw their coins and receive the corresponding amount of cash in exchange.
BLOCK CHAINS UNDERLYING CRYPTO? HOW DOES THE CURRENCY WORKS?
Like any other accounting ledger which records our cash/bank transactions blockchain is also a CRYPTO-LEDGER. A blockchain records CRYPTO-TRANSACTIONS and any transactions a Crypto does over Internet of things.
A single centralized administrator can maintain a totally decentralized database called blockchain over multiple geographical locations. One can store and easily maintain it like an Excel spreadsheet, and create multiple copies of the data on different computers over various networks.
Each ledger is a chain comprising different blocks made up of data. As new data is updated over the network, a new “block” is created and attached to the “chain.” Each computer known as a node update its systems with the changes made. This facilitates identical data over the networks overall.
WHY IS CRYPTO CURRENCY VOLATILE?
The primary reason for volatility in cryptos is their newness. The lack of understanding and regulations of cryptocurrency trading has led to a highly speculative market. Investors make bets on whether the price will go up or down, and these bets can cause sudden influxes or outflows of money, leading to high volatility.
Unlike other assets cryptocurrencies are not controlled by any central authority, classes such as fiat currency, equity, or bonds. This is because cryptocurrencies are decentralized, meaning that they are not subject to the control of any government or financial institution.
The limited supply of cryptocurrencies means that some entities have large holdings of these assets. This gives them the power to influence the price of cryptocurrencies by selling or buying large amounts of them. This can lead to increased volatility in the cryptocurrency market.
JURISDICTION EXERCISED BY THE GOVERNMENTS ON CRYPTO? THE QUESTION IS TO WHICH EXTENT?
Currently, the Indian government has not regulated cryptocurrencies. The government has also stated that cryptocurrencies are not legal tender and has advised citizens against transacting with these currencies. Post cryptocurrencies began surging in India, the government formed a committee to report on the use of virtual currency in the country. The committee recommended a blanket ban on all private cryptocurrency ownership in India. The government now considers introducing a new bill titled “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.” The bill would give investors six months to liquidate their holdings and not be penalized. India would be the first major economy to ban possession of cryptocurrency. Other countries have only banned mining and trading.
The Reserve Bank of India is also planning to introduce a state-owned cryptocurrency.
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies. This means that the legality of crypto mining is unclear in most countries. Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters. This means that they may be subject to the laws that govern that activity.
In Israel for example, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists. However, Canada and the United States are relatively friendly to crypto mining.
TAXATIONS IMPOSED ON CRYPTO:
The Indian government taxes cryptocurrencies at a flat rate of 30%, plus a 4% surcharge. The tax applies regardless of whether the income is treated as capital gains or business income.
Also, a 1% TDS will also apply on the sale of crypto assets of more than ₹50,000 (or ₹10,000 in certain cases).
THE BOTTOM LINE
Digital assets called cryptocurrencies are secured using cryptography. They are a relatively new technology, and as such, they are highly volatile and speculative. Besides it is important to understand the risks involved before investing in cryptocurrencies. There are various factors you should consider before buying a crypto currency.