So what is Bitcoin?
Bitcoin is crypto currency or digital currency. There is no physical currency that is you cannot withdraw it from some ATM.
bitcoins are the units of physical currency. bitcoins are used for electronic transactions.
How do I accumulate or earn bitcoins?
There are certain exchanges where you can buy bitcoins by paying money in the form of different currencies. People can transfer bitcoins to each other just like you transfer cash through online banking for buying and selling products and services.
You can earn bitcoins by a process called mining. Mining is solving complex Mathematics puzzles. Each time you solve something, you will earn bitcoins. Mining requires lot of computer processing power.
Where are my bitcoins stored?
bitcoins are stored using public and private keys. Keys are long strings of numbers and letters linked through encryption algorithms. The public key is published to the world. People can send bitcoins to the public key. The private key is to be kept private and secure. It is used by a person to authorize bitcoin transfers.
Why is it in the news these days?
Bitcoin has been there for many years now. But this year, it has come into the spotlight as its value rose up to $18,000 when in August this year it was only $4,000! Bitcoin futures trading has also started in a few markets abroad. This also led to a surge in the value of Bitcoin. Therefore everyone wants to gain from it – investment firms, individuals etc. But the rise has been mostly due to speculation. Many industry leaders and financial regulators do not recommend getting into it. They consider it a bubble. It does not really produce any value. It is illiquid. It is also not accepted in mainstream financial transactions. It is extremely volatile too. At the same time, many people are trading bitcoins and making money as of now.
What is the status of bitcoins in India?
As of December 12, 2017,
1 bitcoin = Rs. 10,86,051.60
The RBI has issued multiple warnings regarding crypto currencies. Recently it announced that it has not authorised any entity to deal in bitcoins. Investor or traders of virtual currencies "will be doing so at their own risk". There are many risks related to crypto currencies -
- You cannot easily distinguish which crypto currency is real and which is fake.
- Transactions cannot be reversed. If your bitcoins get stolen by hackers, you can never retrieve them.
- There is no proper regulatory body to manage crypto currencies and this poses legal, security and financial risks to people transacting in them.
- Many agents do fraud and fake transactions in bitcoins and unsuspecting people can become victims.
People dealing in bitcoins have to pay tax on it. On selling of bitcoins, one has to pay long-term or short-term capital gains tax.
Long-term capital gains tax is 20%. It would be levied if bitcoins have been held for at least 3 years. For tenures less than than, short-term capital gains tax at 30% would be levied.
Currently it seems to be a risky proposition to invest in bitcoins as there is no regulation and there is high volatility. People can lose money in it quickly. On the other hand, there are many who seem to be positive over it and if this brings in some regulation and customer protection, people can think about it.