Your Guide to Cryptocurrency: The Future of Crypto in India, Reasons for High Demand, and How to Prevent Fraud

[ad_1]

The rise of cryptocurrency is a closely watched economic trend in the financial world affected by the pandemic. Crypto transactions have also gained momentum in India after the Supreme Court in 2020 overturned the Reserve Bank of India’s 2018 order that banned financial institutions from crypto transactions.

But rumors of government control over cryptocurrency trading intensified on Wednesday after the Union government announced that a bill banning private cryptocurrencies will be introduced during the session. winter of Parliament, from November 29.

Against this background, cryptocurrency expert Sunil Raveendran, who works with a Technopark MNC in Thiruvananthapuram, explains the details of the digital currency. Here he tells us about the crypto exchange, the emergence of cryptocurrency as an asset class, the reasons for its increasing demand, how to prevent fraud, and how to future of digital currency in India.

Read the first part of the explainer to find out what cryptocurrency is, how its value is decided, how important it is and what is Bitcoin.

How did cryptocurrency emerge as an asset class? Currency, gold, oil and stocks are the main asset classes. After the 2008 recession, investors seem to have lost confidence in these asset classes. Crypto has capitalized on this trend. Its value increased to $ 3 trillion this month. It has established itself as a solid asset class.

Additionally, a paradigm shift has occurred in the crypto world. Until recently, only retail investors and crypto enthusiasts were interested in “native digital currency”. Now, institutional investors (the people who manage the money of the rich) have shown interest in this.

What are the reasons for the increase in demand for cryptocurrency around the world? It is interesting and important to understand the socio-economic factors that have intensified the adoption of Bitcoin and other cryptocurrencies across the world.

Small toy figures can be seen on the virtual currency representations in front of the Libra logo in this illustrative image. File photo: Reuters / Dado Ruvic

The original idea behind Bitcoin was to develop an alternative payment system that would allow greater privacy, anonymity and autonomy. Later, people realized its financial potential as an asset class and speculative trading instrument.

The novelty of Bitcoin as a payment system is due to its relatively low foreign exchange transaction costs and its independence from government authorities or third-party exchange intermediaries, such as Western Union. As an asset class, it increases the opportunities for portfolio risk management due to its limited correlation with other asset classes such as stocks, bonds, etc. and provides hedge against economic uncertainty.

As a global currency unrelated to any country, bitcoin has the potential to act as a hedging opportunity against country specific risks. In particular, it offers an opportunity to hedge against very high inflation.

Additionally, the anonymity offered by the technology behind the cryptocurrency makes it an attractive option for players pursuing illegal trading activities such as smuggling.

What is a cryptocurrency exchange? These are online platforms that facilitate the trading of cryptocurrency in exchange for digital or fiat currencies. They act as an intermediary between a buyer and a seller. In this process, they charge a commission or transaction fees.

Some of the exchanges accessible in India are: WazirX, CoinDCX and CoinSwitch Kuber.

Why is cryptocurrency fraud so common? Scammers see all asset classes as a way to make money easily. We have heard many reports of gold smuggling and bank fraud. Crypto fraud can be seen as an extension of this.

I think the lack of awareness among crypto traders helps scammers. People with no digital literacy are turning to cryptocurrency as a way to make money fast and it is the main reason for frauds.

The Bitcoin digital currency logo can be seen in a store in Marsaille, France. File photo: Reuters / Eric Gaillard

Be aware that cryptocurrency is one of the riskiest investment choices.

Before investing even a rupee, you should educate yourself about cryptocurrency exchanges. There are hundreds of them. Make a wise choice. You should learn how to store your digital currency. You should also be prepared for drastic fluctuations in the market.

What is the future of cryptocurrency in India following the government’s decision to introduce a new bill? The Cryptocurrency Bill, which will be introduced in the Winter Session of Parliament, is expected to ban all private cryptocurrencies in India, with a few exceptions. The exceptions aim to promote the underlying technology – Blockchain – and its uses.

While the 2019 bill titled “The Cryptocurrency Ban and the Regulation of the Official Digital Currency Bill, 2019” suggested a blanket ban, the 2021 bill titled “Cryptocurrency and Regulation of the Official Digital Currency Bill, 2021 ”makes no reference to the ban. This reflects the substantial growth and participation of the cryptocurrency market in India.

The government is likely to treat crypto as an asset class, not a currency. It will also give the government the ability to obtain tax returns on crypto assets.

I am also convinced that the regulations will bring more transparency and accountability to crypto trading platforms, and provisions to monitor cross-border transactions. Checks and balances to reduce fraud and protect investor interests are also another possibility.

(Disclaimer: Opinions expressed by Sunil Raveendran are personal.)

[ad_2]