Is investing in Bitcoin safe? Get the basics first!

With the fussy mania of Bitcoin going around and past, your eyes and ears, in the news and peer discussions, you must be having some basic questions about it: What is bitcoin? Is it legal? How can I get it? But most of all, you must be thinking, 'Is investing in Bitcoin safe?'

Let's find out!

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Clearing the basics

• Bitcoin is the first ever cryptocurrency that existed, it was invented in 2009 by Satoshi Nakamoto.
• Cryptocurrencies are nothing but computer codes that have monetary value. No Government has any control over them.
• Bitcoins 'self-contain' their value i.e. there's no need for any bank to move or store the money.
• Bitcoin currency is completely unregulated and decentralized.
• Bitcoins are mined, and they can be mined by anyone in the general public who has a strong computer. However, only 21 billion of bitcoins in total can be mined. Currently, there are around 11 million in circulation.
• Bitcoin has no underlying physical monetary base to support its value, and it is totally subject to its demand in the market.

What are the risks?

• Low demand: India has not legitimized bitcoin, hence investment returns are totally based on demand i.e. you get your return only if there is another buyer in the market who is ready to pay you more for it. Currently, the high-value of the digital currency owes to its high demand, but once people start selling, there is a possibility that rates will drastically fall.
• Unregulated: There is no bank or government tax agency that can track your money and its movement. Hence, it can become a tool for money laundering.
• Irreversible transactions: There is no insurance protection of your bitcoin wallet i.e. if you lose your wallet's hard drive data or even your password, your wallet's content is gone forever.

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Status of Bitcoin in India

Finance minister Arun Jaitley highlighted in a statement that cryptocurrencies are not legal tender and have no regulatory permission or protection in the country.

However, there was no announcement banning or imposing any curbs on the same. The government panel is also awaiting a report on tackling cryptocurrencies in India, Jaitley said.

The government has recently cautioned investors to be wary of virtual currencies like bitcoin, saying they are like Ponzi schemes with no legal tender and protection.

"One of the features of cryptocurrency is that there is lack of dependence on the state. It functions with a degree of anonymity. It operates within a virtual community which is created and enjoys the trust of that virtual community," Finance Minister Arun Jaitley told the Rajya Sabha.

"The government is examining the matter. A Committee under the chairmanship of the Economic Affairs Department Secretary is deliberating over all issues related to cryptocurrencies to propose specific actions to be taken… Instead of taking any knee-jerk action, let's wait for the report of this committee." Jaitley added