Although investing in cryptocurrency may appear alluring and lucrative, investors must also take into account a few drawbacks associated with it.
Although Cryptocurrency is often touted as an anonymous means of performing transactions, it actually operates under the umbrella of pseudonymity. This indicates that a digital trail is created which can be interpreted by investigative agencies like the Federal Bureau of Investigation (FBI). Consequently, there exists a prospect for federal or governmental interventions aimed at tracking ordinary individuals’ financial dealings.
There is always a potential threat of a 51% attack on a blockchain. This refers to the scenario where one miner or group obtains more than half of the network’s hash rate control, which enables them to manipulate transactions in various ways such as reversing completed ones, halting ongoing transfers, double-spending coins and inhibiting validation of new transactions. It’s worth noting that only newly created blockchains and recently hard-forked networks are susceptible to this type of attack.
Most blockchains operate on the proof-of-work consensus mechanism, which mandates network participants to employ high-powered ASIC computers and correct hashes in creating a new addition of blocks. As a result, excessive energy consumption is witnessed worldwide leading several countries to adopt measures against its adverse environmental effects.
Cryptocurrencies suffer a significant disadvantage due to the absence of crucial transaction policies. Refund or cancellation is not an option by default for erroneous crypto wallet transactions, and different regulations apply across varying stock exchanges and applications for each digital currency.
Is it permissible to use Cryptocurrencies in India?
The use of cryptocurrencies as a means of payment lacks regulation and central authority in India. Absence of established protocols for conflict resolution when transacting through digital currency further complicates matters, thus undertaking any trades entails inherent risks.
The imposition of a tax on digital assets by Nirmala Sitharaman, India’s Finance Minister, has sparked debates about the legality of cryptocurrency in the nation.
Based on various statements made by the Governor of the Reserve Bank Of India (RBI) and other prominent ministers, it appears that cryptocurrency has not been prohibited in India. Prior to 2022, there were no regulations surrounding cryptocurrencies within the country. However, this altered when a tax rate of 30% for profits from cryptocurrencies and a source deduction tax rate of 1% was introduced during Union Budget discussions in 2022. These official measures indicated the Indian government’s adoption of regulatory policies relating to cryptocurrency transactions within its borders.
Although the decision was applauded by many as it represents a crucial step towards obtaining cryptocurrency recognition, India’s governmental authorities must still provide an official statement for cryptocurrencies to be acknowledged as lawful in the country.
India’s Taxation Policy on Cryptocurrency
The taxation of cryptocurrency is a convoluted area for investors in India. Initially, there were no income tax or goods and services tax (GST) policies imposed on cryptocurrencies; however, with the recent enactment of Union Budget 2022, these virtual assets are now subjected to taxes under a new digital asset taxation framework encompassing cryptocurrency.
To comply with income reporting requirements, crypto investors must maintain a thorough account of their profits and losses.
When reporting gains from the transfer of virtual or digital assets, only acquisition expenses can be deducted.
If the buyer’s payment surpasses the threshold limit, a tax rate of 1% will be applied to their Tax Deducted at Source (TDS).
Tax is applicable at the beneficiary’s end if cryptocurrency is given as a gift or transferred to them.
Should investors experience any loss due to investing in virtual or digital assets, they will not be able to offset it with other sources of income.
Conclusion
However, not all electronic commerce platforms permit cryptocurrency trading. Surprisingly,Bitcoin and Ethereum- the major cryptocurrenciesare infrequently utilized for retail transactions within Indian borders; their use is largely relegated to cross-border transfers outside of India.
Before investing in cryptocurrencies, it is crucial for crypto enthusiasts to possess adequate comprehension of the potential risks. With all the advantages cited previously, there exists little room for argument that cryptocurrency investment lacks merit. Particularly with its ability to facilitate secure and prompt transactions, such benefits remain highly valuable to investors seeking safety and speed alike.