Business Desk, ETV Bharat: The Bitcoin has once again gained everyone's attention as it has breached the USD 45,000 level on the back of USD 1.5 billion investment made by Tesla owned by the world's richest person – Elon Musk.
For the Bitcoin that has been growing by leaps and bounds starting from last March when it was hovering around USD 5,000, the latest announcement from Tesla proves to be a major shot in the arm in further mainstreaming its usage.
Back in India, the Minister of State for Finance and Corporate Affairs Anurag Thakur Tuesday made a statement on the floor of the Rajya Sabha saying that the existing laws are inadequate to deal with the issues concerning cryptocurrency and a bill on the digital currency will be sent to the cabinet for its approval at the earliest.
This news flowing from different parts of the world has left many citizens with more doubts than answers as this new age currency is at the intersection of complex technologies and legal framework.
On its part, ETV Bharat brings you a complete set of FAQs related to this hot topic. Take a look.
What is cryptocurrency?
In a nutshell, cryptocurrencies are digital or virtual currencies that have unique software codes. Unlike the conventional currencies (rupee, dollar, etc) that are available and can be transacted in physical as well as virtual forms, digital currencies have no physical presence.
As the name ‘cryptocurrency’ suggests, methods used in cryptography as well as blockchain technology form the backbone of this currency.
There are various types of cryptocurrencies, such as Bitcoin, Etherium, Stellar, Ripple and many more. However, Bitcoin is the most popular of the lot.
What is blockchain technology?
When experts talk about cryptocurrency, we often hear about cryptography techniques as well as blockchain technologies.
Blockchain is basically a database technology with a difference.
Unlike the regular databases, blockchain technology is peculiar as it stores information in a number of blocks which are linked to one another and form a ‘chain’.
Due to this interlinking, it makes the data stored using blockchain technology irreversible.
When these currencies (software codes) are stored on several computers using blockchain technology, they are protected from counterfeits.
How does Bitcoin come into existence?
In many ways, Bitcoin is like digital gold. And, like gold, bitcoin cannot simply be created out of nothing; it requires work to ‘extract’.
While gold must be extracted from the physical earth, bitcoin must be "mined" via computational means.
In other words, crypto currencies are ‘mined’ by solving complicated cryptographic problems and the first one to crack is rewarded with a block of crypto currencies.
Similar to the conventional currency, Bitcoin also has a stipulation as set forth in its source code. The code stipulates that it must have a limited and finite supply. For this reason, there will only be 2.1 crore bitcoins ever produced.
As per an estimate, around 1.85 crore bitcoins have been mined and this leaves less than 25 lakh Bitcoins that have yet to be introduced into circulation.
Is it legal to invest in Bitcoin in India?
In short, yes. Trading in Bitcoin is not banned in India, but it is also not regulated by any central authority. The Supreme Court of India, in its ruling pronounced on 25 February 2019, had asked the government to come up with cryptocurrency regulation policies soon, but there has been no development since then.
So, it is important to know that though you do not break any law if you trade in cryptocurrencies, there are no set rules, regulations, guidelines or any kind of government backing in case any dispute arises when trading in Bitcoins.
However, the latest statements from the RBI and Anurag Thakur indicate that India will have a new policy framework in the coming months.
Last week, the RBI Governor Shaktikanta Das said that an internal committee is looking at the idea of central bank digital currency and a decision will be taken at the earliest.
Where one can buy and sell Bitcoins in India?
Bitcoins can be bought and sold at various exchanges in India like Wazir X, CoinSwitch, ZebPay, CoinDcx etc. One can open a trading account at these exchanges, transfer money from the bank account to the trading account and start buying and selling cryptocurrencies.
What documents are needed to open a Bitcoin trading account?
All legitimate cryptocurrency exchanges in the country would ask customers to provide their KYC details, bank account details and a registered mobile phone number to buy/sell Bitcoins on their trading platform.
Know your customer (KYC) verification is done through both Permanent Account Number (PAN) and Aadhaar Card. Also, money can be transferred to and from the registered bank account only and not from any other source.
Are these exchanges government-regulated?
Cryptocurrency exchanges in India are currently running under self-regulatory organisation (SRO) framework. They do not fall under the ambit of any government regulatory framework and do not need any licence to start operations in India.
How is profit from Bitcoin investment taxed in India?
If investors in India make profit by buying and selling Bitcoins, they need to pay capital gains tax on it. Otherwise, if you are a trader and your predominant activity is buying or selling cryptocurrencies, the profit becomes a part of your business income and will be taxed accordingly.
Do cryptocurrency exchanges share information with tax authorities?
Cryptocurrency exchanges are meant to maintain customer records, including all buying and selling activities, and can share the same information with tax authorities if asked to. This means that the income-tax department has access to the information on the people buying and selling Bitcoins in the country.
Why has Bitcoin value been on a rise of late?
The primary reason is its usage by multinational firms. Major companies like Microsoft, Starbucks, etc have started accepting Bitcoin as a form of payment from customers. Similarly, the latest statement from Tesla indicates that it may extend a similar option in near future.
