Modules for Investors
Alternate investment options in India outside of pureplay financial instruments
Translate the power of knowledge into action. Open Free* Demat Account
Investing in digital currency
Before we wrap up this module, there is one other alternative asset that we need to get to know. You may have heard a great deal of chatter about this alternative investment option in recent years. And once we get further into the chapter, you will certainly recall how relevant they are in the current global economic climate. The alt asset we are talking about is digital currency.
What is digital currency?
Digital currency is essentially any currency that can be accessed only via a digital or electronic channel. Also known as digital money, electronic currency or simply cybercash, it cannot be tangibly held, stored or exchanged. Instead, transactions involving digital currency or digital money occur via digital media, using a computer, any other device connected to the internet or any electronic wallet.
In most cases, digital currency can be used much like physical currency. You can use it to pay for goods or services, transfer it to another person, or receive it from another account.
Is cryptocurrency a kind of digital currency?
Yes, cryptocurrency, which is the buzzword at the moment, is a kind of digital currency too. However, while all cryptocurrencies are digital currencies, not all digital currencies are cryptocurrencies. There are also other kinds of digital currency, apart from cryptocurrency, such as virtual currencies and digital money issued by central banks.
Digital currencies in India
Many countries in the world have their own, central bank approved digital currencies. More recently, India caught up with this global phenomenon, thanks to the budget 2022. Beginning April 1, 2022, India is all set to come out with its own version of a government approved digital currency, known as the digital rupee.
This digital rupee will be issued by the Reserve Bank of India, and it will be fungible with the physical rupee. What this essentially means is that you can make use of the digital rupee in place of the physical currency in India, to pay for goods or services or to transfer or receive funds. The digital rupee is to be created and introduced using blockchain technology, much like cryptocurrency.
Can you invest in digital currency?
While you may not be able to invest in all kinds of digital currency, you can certainly invest in the most popular kind of digital money we have today. We’re talking about cryptocurrency, of course. Cryptocurrency is now widely being regarded as one of the most popular and preferred new-age alternative investment options to add to an existing portfolio. Indian investors are also among the many global investors keen to make the most of the emerging cryptocurrency market.
In fact, in 2021 alone, around 20 million Indian investors entered the cryptocurrency market. And India has the highest number of crypto investors in the world. If you are planning to jump on the crypto bandwagon, or even if you have already done so, remember that income from the transfer of digital currencies like cryptocurrencies will be taxed at 30%.
Popular cryptocurrencies to invest in
There are over 10,000 cryptocurrencies in the global digital currency market today. However, only some of them make for popular or good investments. Knowing what they are can help you diversify your investment portfolio prudently. So, check out the top popular cryptocurrencies to invest in.
Bitcoin is the original cryptocurrency. Introduced in 2009 by a person named Satoshi Nakamoto, it has been steady at the number one position for years now. Data shows us that currently, as of February 2022, there are around 18.70 million Bitcoins. However, it is fast becoming a scarce resource since Satoshi Nakamoto placed a hard limit on the supply of Bitcoin at 21 million.
Aside from Bitcoin, Ethereum is the next biggest cryptocurrency today. It is essentially a decentralized platform that supports the development of smart contracts and decentralized apps. The objective behind the Ethereum project is to develop an entire range of decentralized financial services that can be accessed by people across the globe. The cryptocurrency Ether, which is developed using this platform, is the second biggest digital currency by market capitalization after Bitcoin.
Litecoin was launched in 2011, and like Bitcoin, it is not controlled by any centralized authority. It is also similar to Bitcoin in many other ways, which is why many investors refer to it as the silver to Bitcoin’s gold. This digital currency is also different from BTC in some ways. For instance, its block generation process is faster, and its transaction confirmation time is also quicker.
Cardano is a digital currency that was created by engineers and mathematicians who were cryptographic experts. The team of experts used extensive research-based techniques to create Cardano, which comes with the objective of becoming the first financial OS in the world. The Cardano project also focuses on creating solutions for voter based frauds, promote interoperability of blockchains, and make legal contract tracing possible.
Taxes on cryptocurrency: Post budget 2022
Budget 2022 introduced new taxes on income from cryptocurrency in India. Although such income was typically taxed as per the investor’s income slab up until now, the new budget brought out more clarity about how crypo income will be taxed. Here are the key details that you should know about taxes on cryptocurrency post budget 2022.
- Profits on cryptocurrency will be taxed at a flat rate of 30%.
- No deductions or exemptions will be allowed except cost of purchase or investment.
- Buyers should deduct 1% TDS on transfers of virtual digital assets, if the sale value is above a specified limit.
Here is an example to understand crypto taxation better. Say an investor buys a crypto asset at Rs. 10,000. Later, he sells it at Rs. 15,000. This results in a profit or Rs. 5,000. The tax on the profits at 30% tax would then come up to R. 1,500.
This sums up the key details about digital currency in the market today. If you want to learn more about cryptocurrency, there is a whole module dedicated to it. So, head to the first chapter of the module on cryptocurrency to understand how trading and investing in this new age digital currency.
A quick recap
- Digital currency is essentially any currency that can be accessed only via a digital or electronic channel.
- Also known as digital money, electronic currency or simply cybercash, it cannot be tangibly held, stored or exchanged.
- Transactions involving digital currency or digital money occur via digital media, using a computer, any other device connected to the internet or any electronic wallet.
Frequently Asked Questions (FAQs)
What is digital money?
Digital money, also referred to as digital currency, is any money or currency that is stored and exchanged primarily via digital channels over the internet. Common examples of digital money include cryptocurrency, any digital money issued by central banks and virtual currencies.
What are some advantages of digital money?
Digital money comes with many advantages such as a higher level of security as well as more confidentiality. Digital money is also easier to transfer in exchange for receipt of services or purchase of goods.
What are some disadvantages of digital money?
Despite its upsides, digital money comes with some risks. It may be prone to forgery, and it may be difficult to trace.
How would you rate this chapter?
Comments (0)Add Comment