Cryptocurrency Investment Guide For Indians: Getting Started

Cryptocurrency is a digital asset based on blockchain technology that can circulate without the centralized authority of a bank or government. There are thousands of different cryptocurrencies, from Bitcoin and Ethereum to Dogecoin and Tether, and they can be purchased through crypto exchanges like CoinDCX, WazirX, or Coinswitch.

In India, it is legal to buy Bitcoin and other cryptocurrencies. However, it is important to remember that cryptocurrency trading is largely unregulated in the country. Before investing, individuals should educate themselves on this asset class and be aware of the risks involved, as it is a volatile investment choice.

1. Sign up on a crypto exchange platform.

2. Set up account security by verifying your email address.

3. Complete the Know Your Customer (KYC) process.

4. Add funds to your crypto exchange wallet.

5. Buy the cryptocurrency of your choice.

It is also important to choose a secure storage place for your cryptocurrencies, such as a hot or cold wallet.

Understand the basics of cryptocurrency and the associated risks

Cryptocurrency is a digital currency that uses encryption algorithms to function as a currency and a virtual accounting system. It is a decentralised form of payment that does not require a bank or any other third party to regulate it. The use of blockchain technology allows most cryptocurrencies to exist as "trustless" transactions, free from the oversight of a central authority.

The value of cryptocurrencies is determined by market participants and their transactions. Cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Dogecoin have grown in popularity as alternatives for online payments and investments. They offer secure and seamless peer-to-peer transactions, removing the need for intermediaries.

However, investing in cryptocurrencies carries significant risks due to their volatile and speculative nature. Here are some key risks to consider:

• Volatility: Cryptocurrencies are highly volatile, and their prices can fluctuate sharply due to unexpected changes in market sentiment. It is not uncommon for their value to drop by large amounts in a short period.
• Unregulated Nature: Cryptocurrencies are currently unregulated by governments and central banks, which can make them susceptible to fraud and manipulation.
• Susceptibility to Errors and Hacking: Technical glitches, human errors, and hacking attempts are possible risks. The security of cryptocurrency wallets and exchanges is crucial to protecting investments.
• Hard Forks and Discontinuation: Cryptocurrency trading is subject to additional risks, such as hard forks (community-led changes to the blockchain protocol) and discontinuation. These events can cause price volatility and impact the reliability of trading platforms.
• Loss of Private Key: Access to cryptocurrencies is controlled by both public and private keys. If an investor loses their private key or it is compromised, they may lose access to their digital wallet and their entire cryptocurrency investment.
• Cyber-Security Risks: Trading platforms and third-party service providers are potential targets for hackers and malicious activities. Investors' digital currencies and personal information may be at risk.
• Peer-to-Peer Transaction Risks: Digital currencies can be traded directly between parties without intermediaries. In such cases, risks like double-selling are borne entirely by the transacting parties.
• Loss of Confidence: Cryptocurrencies are not backed by central banks or other traditional financial institutions. A loss of confidence in the digital assets industry could lead to a collapse in trading activities and a sharp drop in value.
• Regulatory Restrictions: There are inconsistencies in the legal status of cryptocurrencies across different jurisdictions. Some countries may impose restrictions on acquiring, owning, or trading digital currencies, impacting investors' abilities to convert and trade.
• Taxation: The tax treatment of cryptocurrencies varies across jurisdictions. Investors should seek specific tax advice to ensure they comply with their home jurisdiction's regulations and avoid unexpected liabilities.

It is essential to understand these risks and conduct thorough research before investing in cryptocurrencies. While they offer exciting opportunities, they also carry significant risks that investors should carefully consider.

Research the legal status of cryptocurrency in India

The legal status of cryptocurrencies in India is complex and has changed over the years. Currently, cryptocurrencies are not regulated in India, and the government has stated that they are not legal tender. The government has advised citizens against transacting with these currencies, but there is no regulation or ban on the use of cryptocurrencies in the country.

The history of cryptocurrency regulation in India has been marked by a series of shifts. In 2013, the Reserve Bank of India (RBI) issued a circular warning the public against the use of virtual currencies. The bank highlighted various risks associated with their use, including financial, operational, legal, and security concerns. Despite this, banks continued to allow transactions on cryptocurrency exchanges.

In 2017, the RBI released another circular reiterating its concerns and, by the end of the year, issued a warning along with the finance ministry clarifying that virtual currencies are not a legal tender. This warning came at a time when two Public Interest Litigations (PILs) were filed in the Supreme Court, one seeking a ban on cryptocurrencies and the other asking for regulation. The government formed a committee to study the issues and propose actions, but no ban was implemented at this time.

In 2018, the Central Board of Digital Tax (CBDT) submitted a draft scheme to the finance ministry for banning virtual currencies. Subsequently, the RBI issued a circular restraining banks and financial institutions from providing services to virtual currency exchanges. However, in 2020, the Supreme Court of India lifted this curb, allowing banks and financial institutions to provide services to those engaged in transactions of crypto assets.

The Indian government has proposed a tax on cryptocurrencies, with a 30% tax rate on income from the transfer of virtual digital assets. This has sparked a debate over the legality of cryptocurrencies, with some interpreting it as a step towards recognizing virtual currencies. However, the government has clarified that this taxation does not imply legal recognition. The government has also stated that cryptocurrencies will never become legal tender in India.

The Indian government is working on a bill titled "Cryptocurrency and Regulation of Official Digital Currency Bill, 2021" to regulate cryptocurrency and other digital assets. This bill seeks to prohibit all "private cryptocurrencies" with certain exceptions to promote the underlying technology and its uses. The government has not yet provided a clear regulatory framework for cryptocurrencies, and consultations are ongoing.

Choose a crypto exchange platform

A crypto exchange platform acts as an intermediary between the buyer and seller of cryptocurrencies. These platforms enable trading in cryptocurrencies in exchange for digital and fiat currencies.

• CoinDCX: Recognised as one of the safest and most transparent crypto exchanges in India, CoinDCX offers access to up to 500+ cryptocurrencies and is known for its significant liquidity. It has a user-friendly interface and robust security measures. CoinDCX also offers a range of products and services such as margin trading, staking, and lending options in cryptocurrencies.
• CoinSwitch: With over 20 million registered users, CoinSwitch is one of the top crypto platforms in India. It offers trading options in nearly 100 cryptocurrencies and is highly recommended for beginners. CoinSwitch allows investments to start from as low as INR 100 in Bitcoin. It also has no trading fee for Bitcoin transactions.
• Mudrex: Mudrex is a government-recognised platform with more than 2 million investors. It offers investment opportunities in over 350 cryptocurrencies and has zero crypto deposit fees. Mudrex also provides "Coin Sets", which are expert-curated theme-based crypto baskets that provide diversification and reduce risk factors.
• WazirX: WazirX is considered one of India's most reliable and rapidly growing platforms for crypto trading, with over 1.5 crore users. It offers access to over 300 cryptocurrencies and has the lowest withdrawal fee in India, starting from zero. WazirX also has a user-friendly interface and advanced trading features.
• ZebPay: ZebPay is well-known for instant trading and crypto lending. It provides users with fixed return options ranging from 0.2% to 8.5% for lending cryptocurrencies. ZebPay supports 100+ crypto coins and nearly six million users. It also offers attractive cashback offers and monthly rewards for top trades.
• Bitbns: With over 590 cryptocurrencies listed, Bitbns is the first crypto exchange to extend tax relief to investors by offering zero tax deducted at source (TDS) on SIP transactions. It offers a wide range of educational material and advanced trading features such as margin trading. Bitbns also has a low trading fee for Bitcoin.
• Unocoin: One of the oldest crypto exchanges in India, Unocoin offers a simple user interface and strong security measures. It enables users to buy, sell, and store BTC and other digital currencies. Unocoin offers free Bitcoins on sign-up and has a "Refer and Earn" program where users can earn 15% of their transaction fees.

Decide on a payment option

After choosing a crypto exchange, you must fund your account before you can begin investing in Bitcoin or any other cryptocurrency. Depending on the exchange, you can fund your account through bank transfers, net banking, Mobikwik, a cryptocurrency wallet, or UPI.

Remember that platforms may charge higher transaction fees for specific funding options. For example, CoinDCX doesn't charge a fee if you use UPI and bank transfers. However, it charges 0.5% on net banking.

On the other hand, the trading fee on WazirX depends on your trading volume in INR pairs over the last 30 days and your current WRX holdings. You must also top up your Mobikwik wallet using UPI or bank transfer before transferring the funds. Credit cards are not supported for wallet transfers, and charges depend on the getaway you use.

Electronic transfers from a bank account tend to make more sense than other methods because fees reduce the amount of money you can invest (and therefore also the amount of money you have to grow and compound).

• CoinDCX: UPI, bank transfers, net banking
• WazirX: Mobikwik, UPI, bank transfers
• Bitget: Debit/Credit card, UPI
• CoinSwitch: NEFT, RTGS, IMPS
• Mudrex: UPI, bank transfers
• Coinbase: Bank transfer (ACH or SEPA), Credit/Debit Card, UPI
• Binance: Debit/Credit card, Bank Transfer, UPI
• Unocoin: IMPS, NEFT, RTGS, UPI, etc.
• ZebPay: NEFT, IMPS, RTGS
• Kucoin: Credit Card/ Debit Card, Bank Transfer, UPI, etc.
• Kraken: UPI, IMPS, NEFT, RTGS, or bank transfer

Store your cryptocurrency in a wallet

When you buy crypto, it's automatically placed in a crypto wallet. A crypto wallet is a device or program that stores your crypto assets, private keys, and wallet addresses (public keys). There are several types of crypto wallets, each with its own pros and cons.

Hosted wallet

A third party, such as an app, hosts your crypto for you, similar to a bank holding your money. The main benefit is that if you forget your password, you won't lose your crypto. However, a drawback is the limited accessibility to all crypto features.

Non-custodial wallet

Also known as a self-custody wallet, this type of wallet gives you complete control of your crypto. You are responsible for remembering and safeguarding your password, so if you lose it, there's no way to access your crypto. Non-custodial wallets are ideal if you want to access more advanced crypto activities like yield farming and staking.

Hardware wallet

This is a physical device, such as a USB drive, that stores your private keys offline. Hardware wallets are more secure, especially if your computer is hacked, but they are more complex and costly.

Hot wallet

Hot wallets are connected to the internet, so you need an internet connection to access your crypto. They are more susceptible to hacks but are more convenient for frequent transactions.

Cold wallet

Cold wallets, or cold storage wallets, are not connected to the internet. Your crypto is safe from hackers, making them ideal for storing large amounts of cryptocurrency. However, there is a risk of losing your crypto if the device is lost or stolen, or if it's damaged by water or fire.

Paper wallet

A paper wallet is created by printing out your private and public keys. It's an affordable and relatively safe option, but if the paper is stolen or lost, your crypto could be taken. Paper wallets are rarely used today.

When choosing a wallet, consider factors such as security, fees, the number of supported cryptocurrencies, storage and custody, and customer service. Additionally, you may want to use a combination of wallets to balance security and usability.

Frequently asked questions