Bitcoin In India: Is It Legal To Invest?

Bitcoin is the oldest cryptocurrency in the market, barely a decade old. Despite its infancy, it is the largest cryptocurrency in terms of market capitalisation. It is also the first digital currency to leverage peer-to-peer technology to facilitate real-time payments. Bitcoin is based on blockchain technology and encryption keys, which connect buyers and sellers. It is used for payments, and in countries like El Salvador, it is even legal tender.

In India, Bitcoin is gaining traction, with a 20,000% increase in crypto investments in the past year alone. However, there are no regulations for investing in cryptocurrency, and the Reserve Bank of India (RBI) has not made it legal, so there is always a risk of losing capital.

This article will explore the process of investing in Bitcoin in India, the legal status, and the risks involved.

How to buy Bitcoin in India

Bitcoin is not a legal currency in India, but it is possible to own and trade it on exchanges. Here is a step-by-step guide on how to buy Bitcoin in India:

Step 1: Choose a Reputed Cryptocurrency Exchange

Select a cryptocurrency exchange that operates in India, such as ZebPay, CoinDCX, or Binance. These platforms allow you to buy and sell Bitcoin and other cryptocurrencies.

Step 2: Create an Account and Verify Your Identity

Before you can start using the exchange, you will need to create an account and verify your identification. This typically involves providing personal information, such as your name, email, mobile number, and undergoing a Know Your Customer (KYC) process. For the KYC, you will need to submit documents such as your Aadhaar card and Pan Card.

Step 3: Link a Payment Method

To buy Bitcoin, you will need to link a payment method to your account. This could be your bank account, or you can use various digital payment methods, such as NEFT, RTGS, debit or credit cards, and other digital wallets like Paytm, Google Pay, or PhonePe.

Step 4: Place a Buy Order

Once your account and payment method are set up, you can place a buy order for Bitcoin. Choose the amount of Bitcoin you wish to purchase, and follow the exchange's instructions to complete the transaction.

Step 5: Store Your Bitcoin Securely

After purchasing Bitcoin, it is essential to store it securely. You can use the crypto wallets provided by the exchange or opt for cold wallets. Always enable two-factor authentication and additional security measures to protect your Bitcoin.

Additional Considerations:

• Research and understand the risks: Before investing in Bitcoin, ensure you understand the market and the risks involved. Track the crypto market capitals, Bitcoin's share, and price movements.
• Start small: You don't have to buy an entire Bitcoin. You can invest in small amounts, starting from as low as Rs. 500.
• Be cautious of scams: Only use reputable exchanges and be wary of fraudulent activities. Report any scams to the police and relevant financial regulators.

By following these steps and considerations, you can safely and securely buy Bitcoin in India.

Bitcoin's legal status in India

The legal status of Bitcoin in India has been ambiguous and in flux. While Bitcoin and other cryptocurrencies are not recognised as legal tender in India, they are also not explicitly prohibited.

In 2021, the Indian government proposed a 30% tax on income from the transfer of any virtual digital asset (VDA), or cryptocurrency, as well as a 1% tax deduction at source (TDS) on crypto transactions exceeding a specific limit. This "tax first, regulate later" approach has added a layer of complexity to the regulatory environment for cryptocurrencies in India.

The Supreme Court of India overturned the ban imposed by the Reserve Bank of India (RBI) in 2017, which barred entities from dealing with Bitcoin. This decision brought clarity for companies and individuals looking to buy and sell Bitcoin, but there are still no rules, regulations, or guidelines in place for resolving issues related to Bitcoin in India.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, was introduced in the Lok Sabha, seeking to create a favourable framework for the Reserve Bank of India (RBI) to issue an official digital currency. This bill could potentially prohibit private cryptocurrencies, adding further ambiguity to the regulatory environment.

While individuals can trade and hold crypto assets in India, it is important to note that there are risks associated with investing in Bitcoin due to its volatile nature and the lack of clear regulatory guidelines.

Bitcoin wallets

In India, investors can use a blockchain wallet to store their Bitcoins. There are two types of wallets: cold wallets and hot wallets.

Cold wallets, or hardware wallets, store users' private keys offline and work in conjunction with compatible software on a computer. They are considered one of the most secure methods to store funds, ideal for storing large amounts of Bitcoin. However, they are difficult to use while mobile and are not designed for scanning QR codes. If the device is lost without a proper backup, the funds may become unrecoverable.

Hot wallets are on devices that are connected to the internet. They are often free to use and offer add-on services such as trading or staking in exchange for fees. While hot wallets make it relatively easy to carry out transactions, they may be more vulnerable to hackers.

Some popular hot wallet providers include:

• Crypto.com Defi Wallet
• Zengo Wallet
• Guarda
• Exodus
• Coinbase Wallet
• Trust Wallet
• MetaMask

Some popular cold wallet providers include:

• Ledger
• Trezor

The minimum amount to invest in Bitcoin

India is witnessing a growing interest in cryptocurrencies, with a near 20,000% increase in crypto investments in the past year. Bitcoin is one of the most coveted cryptocurrencies in the world, and its popularity is rising in India.

There is no minimum investment amount for Bitcoin in India. However, investors need to be aware of the volatility of the market and the risks involved. For instance, the Reserve Bank of India (RBI) has not made Bitcoin a legal tender, so there is a risk of losing capital.

It is important to note that the value of Bitcoin is constantly fluctuating. At the time of writing, the price of Bitcoin is $48,000, but investors do not need to purchase an entire Bitcoin. On ZebPay, for example, investors can start investing in Bitcoin with Rs 500.

Before investing in Bitcoin, individuals should educate themselves on the market and the risks involved. It is also important to ensure that the platform used is secure and reputable.

How to store Bitcoin

When you purchase Bitcoin, you are given ownership of the amount bought. You are given two keys: a public key and a private key. The public key is used to encrypt information and is your wallet address, while the private key allows you to decrypt the information or access your Bitcoin. This is the key you need to store and safeguard.

There are two types of wallets: cold wallets and hot wallets. Cold wallets are not connected to the internet and are considered to be one of the safest methods for holding Bitcoin. Hot wallets, on the other hand, are connected to the internet and are convenient for users who want easy access to their funds.

Cold Wallets

Cold wallets, also known as offline wallets or hardware wallets, store users' private keys offline. They work in conjunction with compatible software on a computer. Examples of cold wallets include the Ledger Nano X and Trezor Model T, which are usually USB connection-type drives. When purchasing a cold wallet, it is recommended to buy directly from the manufacturer and ensure it is sealed. Additionally, make sure it does not have any seed phrases already written on cards.

Hot Wallets

Hot wallets are software that stores your keys and have connections to the internet. While they provide easy access to your funds, they are more vulnerable to hacks and theft. Examples of hot wallets include desktop wallets, mobile wallets, and web-based wallets.

Other Storage Options

Apart from cold and hot wallets, there are alternative ways to store your Bitcoin:

• Paper wallets: This involves printing out your private and public keys. However, this method is not commonly used due to the high risk of user error or wallet damage.
• Multi-signature wallets: These wallets require multiple keys to sign a transaction, increasing security by allowing users to place wallet keys in different geographical regions.
• Seed phrases: A series of randomly generated words that act as a master password for your wallet. These phrases allow you to recover your keys if you lose your storage devices or access.

Best Practices for Storing Bitcoin

• Back up your Bitcoin wallet regularly to prevent loss of funds in case of computer failure or other issues.
• Keep your software up to date to patch security vulnerabilities and enhance the safety of your Bitcoins.
• Use strong passwords and encryption to protect your backup.
• Store your seed phrases securely and consider memorising them for added protection.
• Use a combination of hot and cold wallets to balance security and usability.

Frequently asked questions