Cryptocurrency In India: Worth Investing Or Not?

Investing in cryptocurrency is a hot topic in India, with many people eager to get involved in this growing market. However, it's important to remember that the crypto market is highly volatile and unregulated, so investors could lose money. Before investing, it's crucial to understand the risks and do your research. Cryptocurrency exchanges such as CoinDCX, ZebPay, Mudrex, and WazirX are popular choices for buying crypto in India, but there are also alternative ways to invest, such as through crypto exchange-traded funds or by investing in companies connected to cryptocurrency.

Cryptocurrency's legality in India

The legality of cryptocurrencies in India has been ambiguous, with no legislature covering them. However, this does not mean that owning cryptocurrencies is illegal. In 2018, the Reserve Bank of India (RBI) banned the sale or purchase of cryptocurrencies for entities regulated by the RBI. This ban was revoked by the Supreme Court in 2020.

In 2020, the Indian government planned to introduce a law to ban cryptocurrencies, which would have imposed a fine or imprisonment for anyone dealing with them. The draft law stated that any direct or indirect use of cryptocurrency would be punishable, and a repeat offense could result in imprisonment of up to ten years. However, since then, there have been no updates on the progress of this law.

Currently, India neither prohibits nor allows investment in the cryptocurrency market. In 2024, the Indian government is exploring the creation of a state-backed digital currency issued by the RBI while banning private ones.

How to buy cryptocurrency in India

India has the highest number of crypto owners globally, and a growing number of people are investing in digital assets like Bitcoin, Ethereum, and others. However, the lack of clear regulations and guidelines from the Indian government makes the process of buying cryptocurrency intimidating for beginners. Here is a step-by-step guide on how to buy cryptocurrency in India:

Step 1: Choose a Cryptocurrency Exchange

The first step to buying cryptocurrency in India is to choose a cryptocurrency exchange, a platform where you can buy, sell, and trade cryptocurrencies. WazirX, CoinDCX, and ZebPay are some of the most popular cryptocurrency exchanges in India. WazirX offers a wide range of coins, while CoinDCX offers over 200 coins and ZebPay is user-friendly for beginners. Other options include Unocoin, BitBns, and Binance.

Step 2: Register and Verify Your Account

After choosing an exchange, you will need to register and verify your account by providing personal information such as your name, email address, and phone number. You will also need to upload proof of ID, such as your Aadhaar card or PAN card, and a selfie. The verification process may take a few days, and once your account is verified, you can deposit funds and start buying cryptocurrency.

Step 3: Deposit Funds

To buy cryptocurrency on an exchange, you will need to deposit funds into your account. Most cryptocurrency exchanges in India accept deposits in Indian rupees (INR) through bank transfers, UPI payments, and other digital payment methods. Log in to your account, click on the deposit button, and follow the instructions to transfer funds.

Step 4: Buy Cryptocurrency

With funds in your exchange account, you can now buy cryptocurrency. Log in to your account, click on the buy button, select the cryptocurrency you want, and enter the amount you wish to spend in INR. The exchange will show you the current price, including fees, and once you confirm the transaction, the cryptocurrency will be credited to your exchange account.

Step 5: Withdraw Cryptocurrency (Optional)

If you wish to store your cryptocurrency in an external wallet, you can withdraw it from the exchange. Log in to your exchange account, click on the withdraw button, enter the address of your external wallet, and the amount you wish to withdraw. Double-check the wallet address to avoid losing your cryptocurrency, and be aware of any withdrawal fees. Once confirmed, the cryptocurrency will be transferred to your external wallet.

Some other points to consider when buying cryptocurrency in India:

• It is legal to buy Bitcoin and other cryptocurrencies in India, but it is not legal tender.
• There is no minimum amount required to buy Bitcoin or other cryptocurrencies in India. You can invest as little as INR 100.
• Cryptocurrency is a highly volatile and risky investment. It is recommended that you do your research and understand the market before investing.
• Be aware of the tax implications of buying and selling cryptocurrency in India, including the 1% TDS (Tax Deducted at Source).

The best crypto exchanges in India

India's cryptocurrency market is growing, with platforms like Mudrex leading the way. Here are some of the best crypto exchanges in India to consider:

• WazirX: WazirX is one of the largest and most trusted crypto exchanges in India, with over 6 million users and a monthly trading volume of $5.4 billion. It offers a user-friendly interface, advanced trading charts, and a P2P platform for direct transactions between buyers and sellers. WazirX has a tiered trading fee structure, with fees ranging from 0.10% to 0.40%, depending on 30-day trading volume and WRX holdings.
• CoinDCX: CoinDCX is a prominent and well-known cryptocurrency exchange in India, valued at $1.1 billion. It offers a simple user interface, robust security protocols, and access to over 500 cryptocurrencies. CoinDCX has a fee structure based on 30-day trading volume, typically ranging from 0.04% to 0.5%.
• Bitbns: Bitbns is a user-friendly crypto exchange with over 4 million users. It offers a wide variety of cryptocurrencies, including metaverse tokens, and provides educational resources through Bitbns Academy. Bitbns has a fee structure based on 30-day trading volume for BNS holders, with fees generally between 0.25% and 0.03%.
• Mudrex: Mudrex is a secure and intuitive crypto investment app, offering over 350 tokens, instant deposits and withdrawals, and strong security measures. It provides "Coin Sets," or curated crypto baskets, for simplified diversification. Mudrex charges a 0.2% fee on every transaction.
• CoinSwitch: CoinSwitch is a non-custodial exchange known for its security and straightforward KYC process. It aggregates liquidity from other leading exchanges, allowing users to trade at competitive rates. CoinSwitch offers trading in more than 170 cryptocurrencies and charges a tiered maker/taker fee of up to 0.49%.
• ZebPay: ZebPay is one of the largest and most established crypto exchanges in India, with over 3 million users. It offers a user-friendly interface, lightning network payments, and zero deposit fees. ZebPay provides trading for over 100 cryptocurrencies and charges no fee for crypto-to-crypto quick trades. Other transactions may incur different fees.
• Unocoin: Unocoin is one of the oldest crypto exchanges in India, offering trading for over 100 cryptocurrencies. It provides features such as systematic buying plans, OTC trade, and crypto baskets. Unocoin charges a flat 0.5% trading fee and has a minimum deposit of INR 1,000.

The risks of investing in cryptocurrency

Volatility and Market Risk

The cryptocurrency market is highly volatile, with dramatic price swings that can resemble a roller-coaster ride. The lack of concrete financial metrics makes valuation ambiguous, and predicting long-term prospects challenging. The extreme volatility is driven by speculation, with investors making bets that cause sudden inflows and outflows of money.

Cybersecurity Threats and Hacks

Cryptocurrency exchanges are frequent targets of cyberattacks and hacks. While larger platforms like Coinbase, Binance, and Kraken have robust security measures, it is essential to choose a platform with top-notch security to protect your investments.

Regulatory Uncertainty

The regulatory landscape for cryptocurrency is still evolving, and governments worldwide are figuring out how to manage these digital assets. The lack of clear regulations can deter investors, particularly institutional investors, from entering the market.

Decentralization and Governance

Decentralization is a double-edged sword in the cryptocurrency space. While it eliminates middlemen and reduces transaction fees, it also means that blockchain networks are managed by consensus and votes among a global community. This can lead to delays or blocks in necessary technological updates and the potential for malicious groups to gain control.

Lost or Stolen Crypto Wallet Keys

Cryptocurrency is typically stored in a digital wallet, and losing access to your wallet or having it compromised can result in the loss of your digital assets. It is crucial to keep your private keys secure and utilize backup methods, such as hardware wallets, to protect your investments.

Scammers and Hackers

Cryptocurrency investors are often targeted by scammers and hackers. It is essential to practice good digital hygiene, such as using strong passwords and two-factor authentication, to protect your investments. Additionally, be wary of fake websites and phishing emails pretending to be from reputable sources.

Technical Complexity and Human Error

Sending and receiving cryptocurrencies require accurate receiving addresses. Even a minor mistake in typing or copying and pasting an address can result in irreversible transactions and the loss of funds.

Tax Obligations

The legal landscape surrounding cryptocurrency is constantly evolving, and it is the individual's responsibility to ensure they comply with tax obligations. The rules and tax guidelines can change quickly, and failing to stay informed can lead to unintended consequences.

How to store your cryptocurrency

Storing your cryptocurrency safely is one of the most important aspects of owning crypto. If you don't know how to store your crypto safely, it might get stolen or be lost forever. In 2021, an estimated $14 billion worth of crypto was stolen, and that doesn't include crypto lost due to user error or exchange failures.

You can store your cryptocurrency in a 'wallet', which can be accessed using your 'private key'. A crypto wallet stores the private keys that give the user access to their cryptocurrencies, allowing them to send and receive cryptocurrencies like Bitcoin and Ethereum. Your coins are stored on the blockchain, and the private key is required to authorise transfers of those coins to another person's wallet.

There are several types of crypto wallets available, catering to different requirements in terms of security, reliability, and accessibility. These include:

• Hardware wallets: These are devices that store your crypto offline. They can be brought online to make transactions. The signing of a transaction occurs on the physical hardware device itself, which is separate from a user’s personal computer, making things more secure. Hardware wallets are considered to have a high degree of security but may be confusing for less technical users and typically cost around $100.
• Mobile/Hot wallets: These are hot wallets held on your smartphone. They are usually self-custodial and can be great for sending or paying with crypto. However, they can be less secure than cold wallets and are not advised for storing large balances. Mobile wallets are quick and easy to use, but there is a potential for loss of funds if they are not secured, backed up, or if the seed phrase is compromised.
• Paper wallets: Paper wallets were the only cold storage option available in the early days of crypto. A paper wallet can be created by printing out a private and public key. Once funds are sent to the public key, they are taken offline and can only be accessed by sweeping the private key into a hot wallet. The potential for user error with paper wallets is high, and they are not often used anymore. Paper wallets provide an affordable cold storage option but have a high risk of user error or wallet damage.
• Exchange/Custodial wallets: When you buy crypto on an exchange, the funds automatically go to your exchange wallet. This is a custodial hot wallet hosted by the exchange, which holds the private keys for you. Exchange wallets are convenient and support a wide array of assets. However, they lack total control over your private keys and are at risk of hacks and theft.

When choosing a crypto wallet, it's important to consider your individual needs and requirements. For example, if you only hold small amounts of crypto, you might be okay with a custodial wallet that makes it easy to send transactions. On the other hand, if you hold large amounts of crypto, you may want to prioritise security and opt for a cold storage option like a hardware wallet. Additionally, consider the level of technical expertise required for each type of wallet and choose one that balances security with usability.

It's worth noting that no cryptocurrency storage method is 100% safe, even with various security measures in place. All storage options come with their own set of risks and considerations related to risk, usability, and security. Therefore, it's recommended to create backups for your wallets and educate yourself on the mechanics of your chosen wallet to minimise the chance of user error.

Frequently asked questions