Crypto Investment In India: Is It Possible?

India has over 100 million cryptocurrency users, but the asset class is not regulated, leaving investors with little to no protection. Cryptocurrency is a digital asset secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. It is not controlled by a central authority, like a government or bank, and is instead decentralised and distributed across a large number of computers. In India, some of the more popular cryptocurrency exchanges are WazirX, CoinDCX, and CoinSwitch Kuber. These platforms allow users to buy and sell cryptocurrencies like Bitcoin, Ethereum, and Dogecoin. However, it is important to approach crypto investing with caution and to do proper research before investing.

Is it legal to invest in crypto in India?

India's stance on cryptocurrency is complex and ever-evolving. While it is not currently recognised as a legal tender in the country, investing in and owning cryptocurrencies are not illegal either. The Indian government is yet to table the Cryptocurrency and Regulation of Official Digital Currency Bill, which will outline the regulatory framework for the launch of an "official digital currency".

Cryptocurrency is a digital asset secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. It is important to note that cryptocurrency does not physically exist and is not controlled by a central authority like a government or bank. Instead, it is decentralised and distributed across a network of computers, allowing for peer-to-peer exchange on the web without a middleman.

In India, popular cryptocurrency exchanges include WazirX, CoinDCX, CoinSwitch Kuber, and Unocoin. These platforms require users to sign up with their KYC credentials, download the app, and buy, sell, or monitor the value of cryptocurrencies. It is worth noting that these exchanges often charge fees or commissions for transactions, and the absence of regulation in the crypto market can make it risky for investors.

While it is legal to invest in cryptocurrency in India, it is important to approach it with caution. The absence of regulation means that investors have little to no protection if things go wrong. It is essential to do proper research, understand the risks involved, and make informed investment decisions.

How to buy crypto in India?

Firstly, it's important to note that cryptocurrency trading is largely unregulated in India, and investments are purely speculative. If something goes wrong, you will not be eligible for compensation.

If you are new to crypto, the first step is to choose a broker or crypto exchange. A cryptocurrency exchange is a platform where buyers and sellers meet to trade. Exchanges have relatively low fees but can be intimidating for beginners due to their complex interfaces. A cryptocurrency broker, on the other hand, offers an easy-to-use interface but may charge higher fees. Examples of crypto exchanges in India include CoinDCX, Zebpay, Mudrex, and WazirX.

Once you've chosen an exchange, follow these steps:

• Create and verify your account: Sign up and verify your identity by submitting documents such as your Aadhaar card or PAN card.
• Deposit funds: Fund your account using bank transfers, net banking, Mobikwik, a crypto wallet, or UPI. Different exchanges may charge varying fees for different funding options.
• Place your order: Decide which cryptocurrency you want to buy and place your order. You can buy a whole coin or a fractional share, depending on your budget.
• Select a storage method: You can leave your crypto on the exchange or transfer it to a hot or cold wallet for added security. Hot wallets are online, while cold wallets are offline, offering more security but less convenience.

Remember that investing in cryptocurrency is risky, and you could lose some or all of your money. Always do your research and understand the risks before investing.

What are the risks of investing in crypto?

Investing in crypto in India comes with several risks that you should be aware of. Here are some key points to consider:

Volatility and Loss of Investment

The price of cryptocurrencies can be extremely volatile due to various factors, and it is not uncommon for their value to fluctuate rapidly and frequently, exhibiting high highs and low lows. This volatility can lead to significant losses if you invest at the wrong time or if the market takes a sudden downturn.

Regulatory Uncertainties

Government regulations around crypto are subject to change and may differ based on your location. These regulations can impact how you use or access your crypto investments. The lack of clear and consistent guidelines from policymakers can cause uncertainty and impact the value of your investments.

Security and Scams

Cryptocurrency exchanges and wallets have been targeted by hackers over the years, resulting in the theft of millions of dollars worth of coins. Additionally, there is no protection or insurance for lost or stolen cryptocurrencies, and transactions are typically not reversible. This means that if you become a victim of fraud or accidentally send crypto to the wrong recipient, you may have little recourse to recover your funds.

User Error and Technical Issues

User risk is also a significant factor in crypto investing. If you lose your private key, your hard drive crashes, or your wallet becomes corrupted by a virus, you may lose your crypto assets entirely.

Counterparty and Management Risks

When you store your crypto on exchanges or with other custodians, you are trusting them to securely manage your assets. However, theft or loss by these third parties could result in losing your entire investment. Deceptive or unethical management practices have also led to investor losses in the past.

Market Manipulation

Market manipulation remains a concern in the crypto space, with influential people, organizations, and exchanges acting unethically. This can create artificial price movements that may work against your investment strategy.

Pseudonymity and Criminal Activity

While cryptocurrencies offer a degree of pseudonymity, they are not truly anonymous. Government agencies can often track transactions and identify the individuals involved. Additionally, cryptocurrencies have become popular for criminal activities such as money laundering, illicit purchases, and ransomware. This association with criminal activities can impact the perception and value of cryptocurrencies.

High Energy Consumption

Mining popular cryptocurrencies requires a considerable amount of energy, sometimes as much as entire countries consume. This high energy consumption has led to concerns about the environmental impact of crypto mining and could potentially lead to increased scrutiny and regulation.

Lack of Regulatory Protection

In India, cryptocurrencies are currently unregulated, which means investors have little to no protection if something goes wrong. Until the Indian government enacts clear regulations, investing in crypto remains a risky proposition.

How to store crypto?

Storing cryptocurrency safely is essential to prevent the loss of your crypto assets. Here are the steps and methods to securely store your crypto:

Steps to Store Crypto in an Exchange:

• Choose a Crypto Exchange: Select an exchange that supports a wide range of cryptos, offers a good user experience, and is available in your country. Examples include WazirX, CoinDCX, and CoinSwitch.
• Open an Account: Sign up by providing personal information such as an email address, phone number, and legal name. You may also need to submit documents for Know Your Customer (KYC) requirements.
• Complete KYC Requirements: Provide any additional documentation, such as a utility bill or government-issued ID, to verify your identity.
• Deposit Your Crypto: Set up your wallet within the exchange and deposit your crypto by obtaining the wallet address, usually a string of alphanumeric characters.

Steps to Store Crypto in Cold Storage:

• Purchase a Cold Storage Device: Look for a portable device with Bluetooth connectivity.
• Install Corresponding Software: Download the software on your PC or mobile device to manage the cold wallet.
• Save Your Recovery Phrase: Ensure you memorise or securely store your recovery phrase, as it is crucial for accessing your wallet if you forget your PIN or password.
• Create a New Wallet Address: Generate a new wallet address for each crypto you wish to store.
• Send Crypto to Cold Wallet: Double-check the correct address before sending your crypto to the corresponding address on the cold storage wallet.

Steps to Store Crypto in a Hot Wallet:

• Set Up Your Preferred Wallet: Choose a hot wallet that suits your needs and set up an account, ensuring a stable internet connection during onboarding.
• Complete KYC: Provide any necessary KYC information, though some hot wallets may allow you to skip this step initially.
• Add Cryptocurrencies: Check if your preferred hot wallet supports the cryptocurrencies you want to store. If not, manually add each cryptocurrency you wish to use.
• Deposit Your Crypto: Once your hot wallet is set up, you can deposit your crypto and use the wallet address to receive funds from others.

Steps to Store Crypto in a Paper Wallet:

• Use a Secure Computer: Access a computer that is free from malware or, ideally, use a new personal computer to ensure the highest security.
• Generate Credentials: Visit a paper wallet generator site to create the credentials, including your private and public keys.
• Generate an Address: Decide how many addresses you need and generate them accordingly. Some sites can generate up to 10,000 addresses simultaneously.
• Print the Paper Wallet: Print the wallet and fold it so that the crypto address is visible, while the private key is hidden inside.
• Send Crypto to Paper Wallet: After sending your crypto, securely store the paper wallet away from heat and moisture to prevent damage.

When choosing a storage method, consider factors such as security, fees, the number of supported cryptocurrencies, and customer service. Additionally, assess your investment amount, transaction frequency, and technical expertise to determine the most suitable storage approach. Diversifying your storage methods can also reduce the risk of losing everything. Remember to create backups and educate yourself about your chosen wallet to minimise the chance of user error.

What can you buy with crypto in India?

India has a burgeoning cryptocurrency market, with platforms like CoinDCX, ZebPay, and Coinbase allowing investors to buy Bitcoin and other cryptocurrencies. However, the focus of this answer is on what goods and services can be purchased with crypto in India.

Crypto assets can be used to pay for goods and services in India, much like traditional fiat currency. Here are some examples:

• Online purchases: Bitcoin can be used as a means of online payment, similar to credit cards or net banking.
• International transactions: Cryptocurrencies can facilitate international transactions, such as buying goods or services from foreign countries.
• Investment opportunities: Crypto can be used to invest in other cryptocurrencies or blockchain-based projects, such as non-fungible tokens (NFTs) or decentralized finance (DeFi) applications.
• Trading and exchange: Crypto assets can be traded or exchanged for other cryptocurrencies on various platforms, including Binance, one of the largest crypto exchanges globally.
• Payment processing: Binance Coin (BNB) is a form of cryptocurrency that can be used for payment processing, in addition to trading and booking travel arrangements.
• Goods and services from businesses that accept crypto: Some businesses in India may accept cryptocurrencies as a form of payment. For example, Tesla has experimented with accepting Bitcoin as a means of payment.

Important considerations:

It is important to note that the cryptocurrency market is highly volatile, and the value of crypto assets can fluctuate significantly. Additionally, the regulatory landscape for crypto in India is still evolving, and it is essential to stay informed about any legal or tax implications associated with crypto transactions.

Before making any transactions, it is advisable to research the specific crypto asset and the platform being used. It is also essential to understand the risks involved, as the volatility of the market can lead to potential losses. Due diligence and a comprehensive understanding of the market are crucial before investing in or spending crypto.

Frequently asked questions