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Bagmisikha Puhan, Associate Partner TMT Law Practice
The world of cryptocurrencies is very enticing and is now much easier for a user to be able to access and tinker with. However, like every other option which involves financial considerations, this comes with its own set of do’s and don’ts. We will explore the very basics that an end user must familiarize themselves with, to be able to make the most of this market.
As a user, you can enter into the market by signing up with any of the cryptocurrency platforms which allow Indian users to transact on their platforms. While registering with any platform is the easiest bit, it is important for you to know more about the nature of assets that you will be dealing with. Unlike the other forms of securities and assets that you might be familiar with, dealing in cryptocurrencies would mean you should have basic idea about the underlying blockchain technology, the country of its origin, and the social and political impacts that may bring fluctuations to the pricing of the cryptocurrency. In past, tweets from celebrities like Elon Musk have led to erratic fluctuations, and you need to be aware of all of these before you either end up buying more or selling it all.
Most importantly, you cannot put all your eggs in one basket, and buy a lot of the same coins for your portfolio, try to diversify on the nature of your investments.
You will need to:
When you buy it from an exchange, its typically stored within the wallet attached to the exchange. If you do not want the exchange to store them, and you wish for it to be moved to a different more secure location, you can choose from between a hot or a cold wallet. A hot wallet is a crypto wallet which is stored online and runs on web-enabled / connected devices, like your computers, phones. These are convenient, but they are accessible via the internet, and hence, a certain level of vulnerability persists.
As opposed to this, a cold wallet is a crypto wallet which is not connected to the internet and take the form of any external device like a hard drive or a USB pen drive. As it is stored offline, it is treated as one of the most secure forms of storage; with a keycode associated with it. As a user of a cold crypto wallet, you have to ensure that your device remains safe and that you possess the code, or you may never be able to get your cryptocurrency back. This has happened, so be cautious.
As the industry is volatile, there is no set or prescribed method to exit this industry.
These are not the ideal scenarios, but these are one of the many that are available to you to exercise.
Considering not all would be comfortable buying cryptocurrencies directly, owing to the volatility, you can always consider investing in the companies which are connected to cryptocurrency. This would be a comfortable proposition for everyone who intends to invest in companies with fare greater regulatory oversight and might still keep you vested in the blockchain/ cryptocurrency ecosystem.
As a parting advice, as is the case for any other form of investment, ensure that your financial risk appetite, investment goals are aligned with the expectations and possible outcomes of this particular venture. It is highly speculative investment and craves for you to invest with great caution and careful consideration.
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Views expressed above are the author’s own.
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