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Bitcoin and Dogecoin in India: Legal status of crypto, how it is bought and sold, what can you do with them

Bitcoin, Ethereum and Dogecoin were all in green (at the time of writing), while others also showed a positive sentiment. The recent fall came after China's decision to ban financial and payment institutions from providing cryptocurrency services.

twitter-logoManas Tiwari | May 20, 2021 | Updated 19:28 IST
Cryptocurrency
Cryptocurrencies are not illegal in India but, they are not regulated.

Highlights

  • The crypto market crashed badly on Wednesday.
  • Bitcoin and Ethereum have recovered in last 24 hours.
  • Cryptocurrencies are not illegal in India.

The entire crypto world was shaken on Wednesday as it lost close to $1trillion in market cap and biggest of trading platforms, including Binance and Coinbase crashed, leaving investors fuming. Most cryptocurrencies have recovered in the last 24 hours. Bitcoin, Ethereum and Dogecoin were all in green (at the time of writing), while others also showed a positive sentiment. The recent fall came after China's decision to ban financial and payment institutions from providing cryptocurrency services.

Three state-backed organisations, including the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China issued a warning on social media. They basically told the investors that they will have no protection if they were to incur any losses from crypto-currency investment transactions.

The market reaction to China's decision and massive dip in cryptocurrencies following that, expose the volatile nature of these digital coins, being hailed as the future of transactions. This also brings focus back to the legal status of crypto in India and government's stance on it.

LEGAL STATUS OF CRYPTOCURRENCY IN INDIA

There has been a lot of confusion around the legal status of cryptocurrencies in India. This is because the government had proposed a bill earlier this year that had provisions to impose a ban on all cryptocurrencies including Bitcoin and Dogecoin. However, there has been no further development on that.

In fact, a recent report claimed that government has dropped the idea of a complete ban on cryptocurrencies. It found the suggestion, initially given by a committee headed by former finance secretary Subhash Garg in 2019, outdated. Instead, the government plans to put cryptocurrencies under the Asset Class and regulate them.

That's the important bit too. Cryptocurrencies are not illegal in India but, they are not regulated. This means that you can buy and sell Bitcoin, even hold it as an investment but, there is no governing body to look after or protect it.

"There is a lot of confusion in India right now. The thing is that there are no regulations in the country yet. When people hear that, they get scared. The fact is that a lot of things on the internet are unregulated. These included services like Ola and uber, even e-commerce is un-regulated," Nischal Shetty CEO and Founder WazirX told India Today Tech in an exclusive interview.

The important thing to note for investors is that the lack of regulatory framework to govern cryptocurrencies leaves a lot of scope for frauds and scams. Anyone out there can start an exchange platform or invent a cryptocurrency. This increases the risk for investors.

"The onus of researching before investing in the market is on the investors in an un-regulated market. The investors should study a crypto before putting money in it," Shetty added.

HOW TO BUY AND SELL CRYPTO?

There are a lot of crypto exchange platforms that have made it very easy to buy and sell cryptocurrencies like Bitcoin and Dogecoin in the country. The popular Indian platforms include WazirX, Zebpay, Coinswitch Kuber and CoinDCX GO. The investors can also buy Bitcoin, Dogecoin, Ethereum and other cryptocurrencies through international trading platforms like Coinbase and Binance.

Unlike stock markets, all of these platforms work 24x7. This means you can invest and withdraw money on any day of the week and at any time of the day.

The process of buying and selling cryptocurrencies has also been made easier. You just need to sign up on any of these platforms, complete your KYC process, transfer money to the wallet and make the purchase. The investors also have the option to set a pre-decided limit for selling and buying crypto.

There is no limit on how much and what you can buy. The investors can start with as low as they want to. The purchase is completed within minutes after transferring the amount to wallet.

The challenge is that most banks are not willing to work with crypto exchange platforms which has restricted their ability to execute transactions.

"Banks are not giving us the option to accept deposits in the right way and if the banking system doesn't support crypto platforms, how they can work properly. Right now, we have to integrate a new bank to the platform every week because the existing bank stops working. This directly affects the users," Nischal explained.

Clearly, the crypto industry is very young, especially in India. There is a general lack of infrastructure too. The exchange platforms keep running into issues like inability to execute orders, server crashes and more. UPI transactions still don't work on them either. So, these are things investors need to keep in mind before investing.

The other option to buy or sell cryptocurrencies are P2P transactions. This translates to Person-to-Person transactions and works exactly as the name suggests. The users need to find an interested buyer or seller and they can exchange crypto directly with them. However, it isn't easy, especially with the current hype around cryptocurrencies.

WHAT CAN YOU DO WITH CRYPTO?

This is the most important part. The crypto market has grown exponentially in the last few years but, the fact remains that you can't do much with these digital coins. For example, a Bitcoin can't buy you a sandwich, right? So what good is it for? In real world, probably nothing. But, as a store of value, maybe a lot.

It can be compared to commodities like Gold or Silver. Over the years, people have used these precious metals as a method of payment. They are also bought in exchange for money, assuming that they store that value which will grow over the years.

"The purpose of Bitcoin is just like Gold, that is to store value. In fact, it is more accessible than Gold as you only need a mobile phone and internet to buy it. Gold can be liquidated more easily but, that's what makes crypto more volatile as well," Shetty said.

Apart from this, all cryptocurrencies are believed to have their own purpose. For example, Bitcoin is seen as substitute to Gold while Ethereum is seen like a global supercomputer and can be used to run any global program by purchasing cryptocurrency Ether.

However, there are others like Shiba Inu Coin which are nothing but, meme coins. They don't have any purpose or major value attached to them.

Having said that, there are multiple factors that decide a coin's value

Crypto scarcity Anything that is available in a limited quantity, will always have greater value attached to it. It's the same with cryptocurrencies. This is one of the reasons why Bitcoin has become so popular. There are only 21 million coins in the world and more of them started selling, the remaining became valuable. On the other hand, there is no limit on Dogecoins, which is one of the reasons why it might fail in the long run.

Coin utility How a coin can be used also decides how valuable it is. There are coins that can be used for a specific purpose or within a blockchain ecosystem. That makes the more valuable. Others have limited value attached to them.

The foundation of crypto market is laid on hope and speculation that after a point, so many people across the world will hold cryptocurrencies that their value will go up and more use cases will arise. However, not all speculations turn out right. So, if you are planning to invest in cryptocurrencies, do proper research, consult a crypto expert and then only park your money.

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