Bitcoin hit a new record above $47,000 on Tuesday, 9 February, after Elon Musk's Tesla announced a $1.5 billion investment in the largest cryptocurrency. Tesla added that it would begin accepting the digital token as a form of payment for its electric cars.
Bitcoin is an innovative payment network based on the revolutionary cryptocurrency technology, that has enabled a new way to send and receive payments over the internet. The value of bitcoin has been appreciated so much that one bitcoin can buy you a 1 BHK flat in a metro city.
Yes, you read that right! One bitcoin is currently worth Rs 26 lakh, according to Morningstar Ratings Agency.
In India alone, investors aged between 25 and 40 years are spending heavily on bitcoin, according to CoinDCX exchange. Meanwhile, the country’s largest crypto exchange, WazirX, saw a 125 percent increase in their sign-ups in the past six months.
So, if you’re wondering whether investing in bitcoin is for you, read our FAQs to know more.
What is cryptocurrency?
To put it simply, cryptocurrencies are digital currencies, which use strong cryptography to secure online transactions. There are various types of cryptocurrencies, such as Bitcoin, Etherium, Stellar, Ripple and many more.
What is Bitcoin?
Bitcoin is a form of cryptocurrency that is used to perform transactions online – it is just like a credit card but unlike any physical card, it is virtual and cannot be felt. It is basically a bunch of 0s and 1s stored on several computers around the globe.
Can bitcoins be used only in India?
Bitcoins can be used anywhere across the globe because it is digital and is termed to be ‘globally accepted’. Many top companies like Microsoft, Twitch, Starbucks, and others have already started accepting bitcoins as legal transactions.
How did the value of bitcoin increase so dramatically?
Even though bitcoin is a virtual currency, the production of it incurs real cost. One has to ‘mine’ bitcoins and this process consumes electricity. Every miner has to solve a complicated cryptographic problem and the first one to crack it is rewarded with a block of bitcoins.
So, mining is directly proportional to the expense. The competition of solving this complex problem can make the process even costlier.
Limited availability of bitcoin has also increased its demand. Over 18 million bitcoins have been mined already, which leaves less than 3 million. Once miners unlock all the bitcoins, the global supply will be tapped out.
The limited supply has fueled the bitcoin hype, which has led to a sharp increase in its price. It is expected that, as the supply shortens, demand will increase exponentially.
Not only the supply and demand chain, but the market competition has increased the price of the bitcoins as well. With the increase in demand, there’s more competition with people switching over to other forms of cryptocurrencies.
This has led more investors into the crypto game, giving Bitcoin an upper hand with an increase in its customer base.
How can you buy bitcoins in India?
Buying bitcoins in India is as easy as creating a UPI account. You can choose any of these platforms – Coinsecure, Zebpay, and UnoCoin – which are widely trusted in the world of cryptocurrency.
What documents do you need to buy bitcoins?
As you register on the cryptocurrency platforms, you will be asked to submit your KYC documents. For investing in bitcoin, you need the following:
- Aadhaar card
- PAN card
- Bank account in your name
- Email address
- Phone number
What is the minimum amount of bitcoins that you can buy?
One bitcoin today might cost you up to Rs 26 lakh but you don’t need to buy a whole bitcoin in the beginning. You can start with as low as Rs 500 and buy a tiny portion of a bitcoin. However, there is a maximum limit to the number of bitcoins that you buy – as of 8 January 2020, you can buy a maximum of 2,405,700 bitcoins.
How do you earn profits from bitcoins?
Patience is a virtue that is most important to maximise your profits. You need to patiently wait for the prices to rise. For instance, you bought a bitcoin for Rs 24 lakh, so all you have to do is wait till the price increases automatically. This is the best thing to do for beginners.
But if you’re looking to earn and get richer quicker, then you might want to consider trading, just like stock trading. You can also lend bitcoins to another person and earn as much as 15 percent interest on it. If you’re an expert, you can advise people on how to make money with bitcoins and get tipped as well.
How do you withdraw your profit?
The procedure is quite simple. You can visit the nearest crypto exchange and withdraw your returns in the form of physical currency.
Can you transfer bitcoins to your bank account?
Unfortunately, bitcoin does not provide any facility to directly transfer your returns to your bank account. The whole point of cryptocurrency is decentralisation, which means that bitcoin isn’t governed by any regulating or central authority.
Decentralisation makes it impossible to counterfeit, and the government does not hold any power to take it away from you.
However, you can always sell your bitcoins at bitcoin exchanges and can also directly spend bitcoins on various e-commerce websites.
Is bitcoin legal and safe in India?
It is not illegal to sell, buy or trade bitcoins in India. In fact, bitcoins were never regulated by any central authority in India. However, in future, it is expected that the government might release some guidelines to control and trace bitcoin transactions happening in the country. Meanwhile, there are various risks involved, but if you buy bitcoin from an official source, your money will always be in safe hands.
A report published by Wired talks about how the prices that are surging will blast again, like it happened in 2017, but this time the prices will sink real low. So, invest only if you can bear losses.
What are the risks involved in investing in bitcoin?
The price of bitcoin keeps fluctuating – while on most days the prices are skyrocketing, there are days when prices sink real low. On 11 January, the Financial Conduct Authority warned people about the risks as the price trembled from $40,000 to $30,000 within 24 hours.
At the same time, there are cases of fraud and hacking reported around bitcoin. Trading bitcoins comes with a lot of risks, such as fake or illegal money exchanges. Since bitcoin is a programme, there are chances that the system can be compromised and that your bitcoins can be stolen.
Can the government track bitcoin transactions?
All bitcoin transactions are in fact fully transparent, claims bitcoin’s official website.
“All bitcoin transactions are public, traceable, and permanently stored in the bitcoin network. Bitcoin addresses are the only information used to define where bitcoins are allocated and where they are sent. These addresses are created privately by each user’s wallets.
However, once addresses are used, they become tainted by the history of all transactions they are involved with. Anyone can see the balance and all transactions of any address.
‘Since users usually have to reveal their identity to receive services or goods, bitcoin addresses cannot remain fully anonymous’, read a statement on bitcoin’s official website.
However, if you use a new bitcoin address every time, it will be quite difficult to trace the origin of the transaction.
“You can use multiple wallets for different purposes. Doing so allows you to isolate each of your transactions in such a way that it is not possible to associate them all together. People who send you money cannot see what other bitcoin addresses you own and what you do with them,” the statement read.
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