FREQUENTLY ASKED QUESTIONS
WHAT ARE DIGITAL ASSETS?
In the simplest terms, a digital asset is content that's stored digitally. That could mean images, photos, videos, files containing text, spreadsheets, or slide decks. However, in this section, we are only referring to decentralized digital assets like Bitcoin, Ethereum etc.
WHY INVEST IN DIGITAL ASSETS?
Digital Assets have historically shown low correlation to bonds, stocks or any other traditional assets. The Digital Assets are a brand-new asset class. Historically, digital assets have yielded strong Sharpe ratios over multi-year periods (High Sharpe ratios indicate high levels of investment return for the amount of risk taken.) When incorporated into an investment portfolio, digital assets may help increase an investor’s overall diversification due the historically low correlations that they have had with traditional asset classes.
IS IT LEGAL TO OWN DIGITAL ASSETS?
It’s a bit of a grey area when discussing the legalities of owning digital assets. The reason for this is that most governments around the globe have not implemented any regulations yet that speak specifically to decentralized digital assets like Bitcoin and Ethereum. In short, governments are yet to update their laws to clearly state what is or isn’t allowed.
From what we can tell, as long as you’re not spending or receiving digital assets in exchange for illicit activities like selling drugs, then you’re going to be okay. However, if you are involved in anything shady, then you might be flirting with disaster. If you just own some digital asset as an investment play, we don’t expect that you’ll have any issues.
Moving forward, we do expect that we’ll see some governments work to regulate digital assets a bit more. For many countries, they are not a fan of the anonymity that comes with many of these coins. This makes it hard for governments to handle taxation and tracking of the currency. If significant changes happen to the regulation and legality of owning digital assets, we’ll be sure to cover it on our website so that you’re always in the loop on the latest news. If you specifically want to know about the current status of the digital asset laws in your country, you can fill this form to reach out to us.
HOW CAN I BUY DIGITAL ASSETS?
If you’re interested in buying Digital Assets, there are a couple of different ways for you to go about it. The most popular method is to purchase the Digital Assets from an exchange. Digital Asset exchanges operate much like a stock exchange. It’s a place where you can buy and sell Digital Assets. If you’d like to check a few, we’ve included a link below to the best Digital Asset exchanges in the industry in India.
Globally, Binance is supposed to be one of the best and most secure Digital Asset exchanges.
Another option for buying Digital Assets is through the use of ATM machines. Much like you would use a regular ATM to access cash, Digital Asset ATMs have been popping up around the world. Instead of being given actual coins, you’ll receive the private key that will provide you with access to the funds that you’ve purchased. According to Coin ATM Radar, there are currently over 3,500 of these ATMs around the globe located in over 70 countries.
HOW TO STORE YOUR DIGITAL ASSETS?
There are a couple of ways you can store your digital assets. Each has it's own benefits and disadvantages.
A) Store on a centralized exchange - You can store your digital assets in the centralized digital asset exchange where you buy these assets. This method is considered to be dangerous as you do not retain the control of your private keys. You could end up losing all your digital assets if the exchange gets hacked. This has happened in the past. However, most reputed exchanges have improved their security and hence such instances are quite rare now. Store only that amount of assets that you want to trade with daily.
B) Store on a hardware wallet - This is the best way to store your digital assets as you retain control of your private keys. The wallet is offline (also known as cold) and hence not susceptible to hacking. You should store most of your digital assets that are you HODLing in this wallet.
We can design a detailed standard operating procedure for your wallet management process. Reach out to us by filling this form to discuss this further.
CAN I INVEST IN BLOCKCHAIN TECHNOLOGY BUT NOT CRYPTOCURRENCY?
It’s a common misconception that Blockchain Technology and Decentralized Digital Assets are separate. They are one and the same. Decentralized Digital Assets are Blockchain Technology’s first “Killer App”.
The immutable transaction ledger (the blockchain) is written into existence with the movement of coins or tokens from one person or category to another.
Think of the blockchain ledger as a long scarf that grows longer with each transaction. The coins act as the knitting needle that pulls the thread (transaction history) as coins are sent from one wallet to another. The movement of coins creates the transaction history that becomes the scarf (the blockchain). Users create the transaction ledger (the blockchain) by moving coins or tokens back and forth between designated participants of the network. As the numbers of transactions grow, so too does the size of the blockchain scarf!
WHAT DETERMINES THE PRICE OF DIGITAL ASSETS?
The primary driver for the value of a Bitcoin and other such digital assets is supply and demand. Basic economics teaches that as there is increased demand or lower supply available for something, the value of it will rise. Conversely, if there is an increased supply or lower demand, the value will drop.
The price of digital assets are very volatile in the short term, so do invest carefully.
CAN COMPANIES BUY DIGITAL ASSETS?
Yes. All types of corporations like private and public companies, HUFs, Partnership Firms, LLPs etc. can buy digital assets. Do check this section for news about some of the biggest companies purchasing digital assets.
CAN I BUY LESS THAN 1 BITCOIN?
Each Bitcoin is divisible to the 8th decimal place. You could buy 0.00000001 bitcoins which is worth less than a rupee
DO I NEED TO PAY TAXES ON MY PROFITS?
Yes. The calculation of the tax liability may vary from country to country depending upon the tax laws in that country. Reach out to us by filling this form to discuss more about the tax laws applicable to you.
ARE DIGITAL ASSETS ANONYMOUS?
In short, the answer to this question is both yes and no. In theory, buying and selling decentralized digital assets like Bitcoin is anonymous, as the system doesn’t know who you are. However, the system can trace things back to your digital profile which may be attached to things like your email address or other identifying factors.
Unless you’re involved in some shady business, it shouldn’t matter much if your crypto dealings are anonymous or not. We expect that many governments around the globe will press for more clarity about who owns what in the digital world so that they can better trace things and tax it. We’ll be sure to keep a close eye on this, and we’ll be sure to update you if we see significant changes.
CAN DIGITAL ASSETS BECOME WORTHLESS?
Unfortunately, it is possible for bitcoin and other such digital assets to become worthless. The same is true for any currency around the world. If we look at history, there have been many significant currencies that became worthless at one point. Notable ones include the German Mark and the Zimbabwean dollar.
Many different things could cause a currency’s value to become worthless. Some of the potential impacts specific to digital assets include competition from other cryptos, technical failures, political issues, and government regulation. In general, you should never assume that any digital asset is safe from failures or bumps in the road along the way.
Thanks for stopping by to check out our Digital Assets FAQ guide. We hope that it helped you answer all of your questions relating to digital assets. We’ve built this site with the intention of aiding folks to learn as much as possible. If you decide that dabbling in digital assets is for you, we wish you the best of luck in your investment future. If you need any further details, do reach us via the contact form and our representative will get in touch with you shortly.