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Updated on :  

08 min read.

Explore various cryptocurrency events that pad up your crypto assets portfolio

Latest updates Clarification on proposed Section 115BBH in Budget 2022

1. Losses incurred from one virtual digital currency cannot be set-off against income from another digital currency.
2. Infrastructure cost incurred on mining crypto assets will not be treated as cost of acquisition.

Union Budget 2022 Outcome:

1. Income from transfer of virtual digital assets such as crypto, NFTs will be taxed at 30%.
2. No deduction, except the cost of acquisition, will be allowed while reporting income from transfer of digital assets.
3. Loss from digital assets cannot be set-off against any other income.
4. Gifting of digital assets will attract tax in the hands of receiver.Losses incurred from one virtual digital currency cannot be set-off against income from another digital currency.

What is an Airdrop?

An airdrop is a tactic adopted by startups (blockchain-based) looking to set up and grow their cryptocurrency projects. The airdrop method involves delivering new cryptocurrency coins or tokens to the wallet of active members for free. The token recipient may be asked to perform a promotional activity for the new coins or tokens. For example, connecting a new member from a particular blockchain platform, such as a wallet member of bitcoin or ethereum network, posting about the currency in the social media platform, etc.

In some cases, the recipient may be asked to maintain a minimum quantity of particular crypto coins.

Experts say that some promotional activity is required to succeed in any new crypto project. Unless the currency is widely used, it cannot gain its value. Hence, an airdrop method can be attempted for a crypto project to stand out from the crowd.

However, one should be cautious of the crypto airdrops that are scams and aimed at artificially increasing their value to make instant profits.

What is coin burning in cryptocurrency?

When a company sends some of their cryptocurrency into an unusable wallet or account, it becomes obsolete and increases its scarcity and value.

The crypto miners or developers do coin burning to control the price of a particular coin. Coin burning is when a certain portion of cryptocurrency is burnt to remove it from the blockchain.

How does coin burning work?

Let us understand how coin burning works:

  1. The developer decides how many coins to burn.
  2. The developer then identifies which coins to burn.
  3. The selected coins are then sent to a specialised wallet address that has no access key. No one can access these tokens without a private key, and they will be removed from circulation.

Why is coin burning undertaken?

Coin burning is similar to the process of buyback of shares by the companies in the stock market. Buyback reduces the total outstanding shares from the market, which positively impacts the stock price. Similarly, coin burning decreases the supply of coins in the market, increasing the value of the remaining coins. 

What is buyback in cryptocurrency?

Where a company buys back its crypto assets, limiting the supply and increasing its overall value.

Buyback is another popular tool to stimulate the price of the tokens. Coin burning and buyback approaches serve the same purpose, but their mechanisms are different.

The buyback in cryptocurrency is identical to the buyback of shares in the traditional stock market. In a buyback, companies buy back their shares and retain their ownership for future use. The buyback in cryptocurrency works the same by buying the tokens from the community and storing them in their (developers) wallets. 

Hence, the buyback does not permanently remove the existence of the tokens circulating in the market, unlike coin burning that is permanently destroyed.

Why buyback?

Many times, the buyback is undertaken to lower the price volatility and increase the liquidity. The lower supplies tend to stabilise the prices in the long term. The reason can be to include the number of tokens in the circulation due to economic circulation errors.

What are rewards in cryptocurrency?

Like traditional rewards such as reward coins for applying for a credit card, cashback on online shopping, etc., the crypto market also provides rewards on top of your initial investment. The rewards can be in the form of additional crypto coins for free, with an added responsibility.

For example, discounts or cashback for using the portal for online shopping, the rewards will be in the form of crypto coins transferred to your crypto wallet.

Similarly, rewards in cryptocurrency credit cards work similar to the traditional credit cards, but instead of earning points or cashback, cryptocurrency coins are rewarded.

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