Bitcoin: A Curse or A Boon?

2020 was difficult for many, save for those who owned Bitcoin. Bitcoin came out of 2020 with an all-time high price of approximately Rs. 29 lakhs (nearly $ 40,000) and is currently hovering around Rs.37 lakhs (almost $ 51,000). 

In today's article, we will speak about bitcoin and how we invest in it and make a profit.

Before we get into the details, let's try to understand what bitcoins are? 

What is bitcoin?

Bitcoin is a form of digital currency that is used to perform secure online transactions. Bitcoin is a form of cryptocurrency, which are essentially digital currencies that used robust cryptography to secure online transactions. Unlike a physical card (credit card), bitcoin is virtual, and its physical presence cannot be felt. Bitcoins are a bunch of 0s and 1s stored on numerous computer devices across the globe.

Bitcoin has become the new rage, and its popularity as a globally accepted digital currency has only skyrocketed. Big companies like Microsoft, Twitter, and Starbucks (among many others) have already started accepting bitcoin as legal transactional currencies.

What's all the fuss about bitcoin?

We have already discussed that bitcoin is a digital currency stored on several computers as a series of 0s and 1s worldwide. It is virtual with no physical being. So, you must think it must be easy to produce bitcoin. The answer is no! despite being a digital currency, bitcoins entail a real cost of production. 

Bitcoins have to be mined into existence, and the mining process consumes electricity (which adds to the cost). People who mine bitcoins are known as miners. The mining process involves miners solving complicated mathematical and cryptographic problems. On solving the problem, the miners are awarded a block of bitcoins. So, you see? Expenses are in direct proportion to the mining process. What makes the process even costlier is the competition for solving complex problems.

The bitcoin mining process is time-consuming and pumps out a limited number of bitcoins. This limited supply of bitcoins has fueled the hype and increased its demand, increasing its price. If the current situation continues, the demand is expected to increase with shortened supply exponentially.

In addition to the market demand and supply forces, market competition is another crucial factor contributing to bitcoins' increased prices. People have switched to other forms of cryptocurrencies (Ethereum, Stellar, Ripple, and many more) due to increased demand and resulting competition.

As it is often referred to as the crypto-game has seen a humongous increase in the investor-players giving Bitcoin an upper hand with an increased customer base.

Now the burning question – can you buy bitcoin in India?

Yes! You can purchase Bitcoins in India. The purchasing process is simple and easy, like creating a UPI account. You can choose from a plethora of cryptocurrency platforms (Coinsecure, Zebpay, UnoCoin, Wazirx, and many more), which are trusted names in the cryptocurrency world. 

The registration process on the cryptocurrency platforms involves the submission of the following KYC documents:

• Aadhaar Card
• PAN Card
• Bank account in your name
• Email address
• Phone number

Buying or selling or trading Bitcoins is not illegal in India. Bitcoins have not (yet) been regulated by any Indian regulatory authority. However, a government intervention (in the form of rules and guidelines) to control and regulate bitcoin transactions and trade is expected in the near future. 

Now you must be wondering about the minimum number of bitcoins that you can buy!

A quick google search shows that one bitcoin is currently worth Rs. 37 lakhs. Yes! You read that right. The value of bitcoin has been appreciated to such a high that you can now purchase a 1BHK flat in a metropolitan city with a single bitcoin.

Today a bitcoin may cost Rs. 37 lakhs, but that does not mean you have to buy an entire bitcoin right away. You can start your crypto-journey with as low as Rs. 500, which will buy you a tiny portion of a bitcoin. As we have already discussed, there are no statutory regulations over bitcoins. Therefore, there is no maximum legal limit to the amount of bitcoins a person can buy. You can buy as many bitcoins as you want. However, it is to be noted that the real limit to the bitcoins is the total number of bitcoins that can be mined and that is 21 million, of which almost 18 million (including those that have been lost) have been already mined and close to 3 million remain to be mined. 

So, how exactly do you make money with Bitcoins?

As it happens with any investment, patience rewards you with maximum profits. You wait patiently for the prices to rise. Suppose you purchased a bitcoin worth Rs. 22 lakhs – all you have to do is wait for the price to increase automatically. Beginners and novices can adopt this method of reaping profits.

In case you are looking to make quick money, you want to consider trading (just like stock-trading). Another avenue is to lend bitcoins to others and earn interest as high as fifteen per cent on it. And if you are an expert, well, you can consult others on ways of making money through bitcoins and get tipped for it.

Withdrawal of profits from bitcoins

So, you have made profits from your crypto-transactions and want to withdraw them. Well, the process is quite simple. All you have to do is visit the nearest crypto exchange and withdraw the profits in the form of physical and tangible currency.

The entire system of cryptocurrency rests on decentralization, which is why there is no facility to directly transfer the returns and profits to investors' bank accounts. Decentralization defeats counterfeit possibilities, and the government has no regulatory authority over it (so far!).

This does not mean you cannot sell or use bitcoins. You can sell bitcoins at bitcoin exchanges and spend them on various e-commerce portals.

Risks involved in bitcoin investments

The bitcoin prices are subject to wild fluctuations – some days they will skyrocket, and some days they sink really low. Bitcoins had also found themselves in a negative light when cases of fraud and hacking came to light. At the end of the day, bitcoin is a program, and it may attract chances of your system being compromised, or your bitcoins may be stolen. Trading in bitcoins also comes with risks such as fake or illegal bitcoin exchanges.

Closing remarks

Bitcoins have breached the financial markets worldwide. Everyone wants to hop on the bitcoin bandwagon to make money. But it is advised to be aware of the risks involved in bitcoin trading. Bitcoins are subject to wild price fluctuations, so invest only if you can bear losses too. This article serves as an introduction to bitcoin, and we will discuss more in more articles to come.

Until then, stay positive, test negative.

Happy Investing!