Cryptocurrency are no longer a word unknown to all. From major corporates to individual investors, more and more people are recognizing the potential of this digital assets. The 1.6 billion USD crypto market is projected to reach 2.2 USD billion by 2026, growing at a CAGR of 7.1%.

Of course, the cryptocurrency boom has been mainly due to the rise of Bitcoin. As a result, if you want to make money using Bitcoin,  it has never been more accessible. Here’s all you need to know about making money with this form of cryptocurrency, plus insights on how cryptocurrency and tax accounting work.

Table of Contents: Cryptocurrency – Complete Know How

  1. What is Cryptocurrency.
  2. Cryptocurrency- Should we Invest or Not.
  3. Trading in Cryptocurrency.
  4. Popular Cryptocurrencies.
  5. Cryptocurrency in India
  6. How to make money in Cryptocurrency trading

 

What is Cryptocurrency:

Cryptocurrency is a type of digital or virtual currency that uses cryptography for security, making it nearly impossible to counterfeit or double-spend. Unlike traditional currencies issued by governments (like the US dollar or Euro), cryptocurrencies operate on decentralized networks based on blockchain technology. A blockchain is a distributed ledger that records all transactions across a network of computers.

If you’ve been hesitant to jump in, you’re not alone – but the longer you wait, the more you might be missing out. Fortunately, a range of intuitive apps now simplify cryptocurrency investing. We’ll assess a selection of top cryptocurrency apps in India, breaking down the key criteria that a novice investor like us should consider.

Cryptocurrency – Should we Invest or Not:

 

The answer is a reassuring yes. We should.

People have become really quick millionaires from knowing how to make money with cryptocurrencies. Bitcoin is well-known for being extremely volatile and can spike by hundreds (or even thousands) of dollars in a few hours. No stock, bond, ETF, or physical commodity has this potential.

Likewise, the price can also plunge and wipe you out. This is what you need to keep in mind when you make money selling Bitcoin.

What is trading in Cryptocurrency –

Cryptocurrency trading is the buying and selling of cryptocurrency on an exchange. You can trade crypto by speculating on their price movement via contracts.

CFDs are leveraged derivatives – meaning that you can trade cryptocurrency price movements without taking ownership of any underlying coins. When trading derivatives, you can go long (‘buy’) if you think a cryptocurrency will rise in value, or go short (‘sell’) if you think it will fall.

By contrast, when you buy cryptocurrency on an exchange, you buy the coins themselves. You’ll need to create an exchange account, put up the full value of the asset to open a position, and store the cryptocurrency tokens in your own wallet until you’re ready to sell.

Popular Cryptocurrencies:

  • Bitcoin (BTC): The first and largest cryptocurrency by market capitalization. Bitcoin is often referred to as “digital gold” because it’s considered a store of value. Bitcoin’s main use case is as a decentralized store of value and medium of exchange.                                                      Created by an anonymous person or group of people using the name Satoshi Nakamoto in 2009.
  • Ethereum (ETH): Known for its smart contract functionality, Ethereum enables developers to build decentralized applications (dApps) on its blockchain. Ethereum was Launched in 2015
  • Ripple (XRP): Aimed at facilitating fast and low-cost cross-border payments, particularly for financial institutions. Ripple was launched in 2012
  • Litecoin (LTC): Often referred to as the “silver to Bitcoin’s gold,” Litecoin is a peer-to-peer cryptocurrency designed to have faster transaction speeds and lower costs than Bitcoin. It’s one of the oldest cryptocurrencies and has been widely adopted. Litecoin was launched in 2011
  • Cardano (ADA): A blockchain platform with a focus on sustainability, scalability, and peer-reviewed research.

  • Dogecoin (DOGE) : Dogecoin started as a meme but has gained significant popularity, especially due to celebrity endorsements like Elon Musk. It’s often used for tipping and small transactions. Dogecoin was launched in 2013. Use: Microtransactions, tipping, charitable donations.

  • Other notable cryptocurrencies: Binance Coin (BNB), Cardano (ADA), and Stellar/Lumen (XLM).

    Cryptocurrency Trading: How It Works

    1. Transactions: When you send or receive cryptocurrency, the transaction is broadcasted to the network. Transactions are grouped together in “blocks.”
    2. Mining/Validation: On proof-of-work blockchains like Bitcoin, miners compete to solve complex mathematical problems to validate a block and add it to the blockchain. In proof-of-stake systems, validators are chosen to verify blocks based on their stake in the network.
    3. Blockchain: Once a block is validated, it is added to the blockchain, and the transaction is complete. The blockchain serves as a permanent, unchangeable record of all transactions.

    Cryptocurrency in India

    Growing Popularity: Despite regulatory uncertainty, cryptocurrency has grown in popularity in India, particularly among younger generations. The number of cryptocurrency users and exchanges in India has surged over the past few years.

    Leading cryptocurrency exchanges like WazirX, CoinDCX, and ZebPay have become some of the most popular platforms for buying, selling, and trading cryptocurrencies in India. These platforms have seen explosive growth in user bases as more Indians engage with cryptocurrencies as an alternative investment. we will discuss about the exchanges in India with charges.

    India has started taking steps to regulate the taxation of cryptocurrency transactions. In the 2022 Union Budget, Finance Minister Nirmala Sitharaman announced that:

    • Income from cryptocurrency trading is taxed at 30%, which is one of the highest tax rates in the world for cryptocurrency gains.
    • A 1% tax deducted at source (TDS) is levied on all cryptocurrency transactions above a certain threshold. This is aimed at tracking crypto transactions more effectively.
    • Losses from cryptocurrency trading cannot be offset against other income, meaning they cannot be used to reduce overall tax liability.

    This high taxation has sparked discussions about how it could affect the future of cryptocurrency adoption in the country, as it could limit its use as an investment vehicle.