Cryptocurrencies today, are a raging topic. There are several types of Cryptocurrencies. Apart from the famous Bitcoin, you have Litecoin, Dash, Ripple, Ethereum, Bitcoin cash, Zcash and now Stellar.
So what is a cryptocurrency? A cryptocurrency is a virtual currency which is designed to work as a medium of exchange. Cryptocurrencies are said to be secure and tax-evaders love cryptocurrencies, because they offer anonymity.
Bitcoin is the most famous among all cryptocurrencies. A community of people all over the World create Bitcoins and you or anyone can join this community. Bitcoins run on a technology called blockchain, which is a shared public ledger.
Every single confirmed transaction anywhere in the World is recorded in the blockchain. Only 21 Million Bitcoins can ever be made and this makes them rare. As the demand for Bitcoins increases, so does their value.
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Why Cryptocurrencies Are Bad For You?
The value of a Bitcoin in October 2016 was around $630-650. By the end of 2017, Bitcoin had hit $20,000. Bitcoins had given more than 1000% returns in less than a year. Then there was talk of the first Bitcoin Billionaires, Tyler and Cameron Winklevoss. So, a number of citizens rushed to invest in Bitcoins and other cryptocurrencies, even though they did not understand anything about it.
Bitcoins have lost a lot of value as Governments the World over including India, are cracking down on them. Facebook has banned ads promoting cryptocurrencies on its platform.
SEE ALSO: Why You Should Not Invest In Bitcoins?
Bitcoins do not have the stability you normally associate with a currency like the rupee. This makes them very volatile. Bitcoins are not regulated by any Central Bank like RBI or Government and do not have deposit insurance coverage.
If you deposit your money with a bank be it in an FD, RD or savings bank account, the DICGC (Deposit Insurance and Credit Guarantee Corporation of India), guarantees your deposit up to Rs 1 Lakh per depositor per bank. There are no such guarantees with Bitcoins or Cryptocurrencies.
Mutual funds and Stocks are regulated by SEBI, the capital market regulator. IRDA regulates the insurance sector. PFRDA regulates pension funds. Bitcoins and Cryptocurrencies have no regulator. If you lose your money, there's no one to complain to.
SEE ALSO: How Bitcoins are taxed in India?
Cryptocurrencies are not backed by anything
Bitcoins are not backed by any precious metal like gold and the value of a Bitcoin or any cryptocurrency, lies within itself. No one knows how this currency, the Bitcoin, gets its value.
RBI has said Bitcoins cannot be used for payments and settlements.
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The reason Cryptocurrencies are going up is because of demand and supply, which is open to manipulation. Simply speaking, manipulation and speculation is driving prices up in cryptocurrencies.
Borrowing to invest in cryptocurrencies puts you in the debt trap
Many citizens in India are borrowing money through credit cards just to invest in Cryptocurrencies. This is very bad. Cryptocurrencies like Bitcoin are illegal in India and the Finance Minister has said they are not legal tender. You could lose all your money and fall in severe debt as you will not be able to repay, borrowed money.
Unscrupulous real estate agents and tax evaders are using Bitcoins, to invest in real estate after demonetization. Cryptocurrencies are used for money laundering, tax evasion and the spread of black money.
Finance Minister Arun Jaitley, in his budget speech, has stated that the government will do everything to discontinue the use of Bitcoin and other virtual currencies in India. India does not recognize Cryptocurrencies as legal tender but will use blockchain (The technology that powers Bitcoins), in payment systems.
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