The document provides an overview of blockchain technology and cryptocurrency, explaining key concepts such as distributed ledger technology, smart contracts, and the evolution of blockchain since its inception. It discusses the history, benefits, types of blockchain networks, various applications, and risks associated with cryptocurrencies, as well as details on cryptocurrency mining, market trends, and tax implications. Additionally, it highlights notable cryptocurrencies and their market performance over time.

1. BLOCK CHAIN TECHNOLOGY & CRYPTOCURRENCY
Meaning of Block Chain Technology:
It is defined as a centralized database sharing within a network whereby data is
contained in blocks and each block is linked with the preceding block through
SHA 256. SHA 256 is a software that converts data in strings in to hash up to
64.
Key elements of Blockchain:
 Distributed ledger technology: All the network participants have right to
access the ledger. Data is recorded only once.
 Immutable Records: No transaction recorded can be tampered by the
network participants.
 Smart Contracts: In order to speed up the transaction a set of rules are
initiated called as smart contracts
How Blockchain works:
The data gets recorded in the blocks. The blocks decide the time and sequence
of movement of data. The data gets verified when it passes through each
block. Each block is connected to succeeding block to ensure that data does
not gets tampered or misused.
History of Block chain:
 Cryptographer David Chaum first proposed a blockchain like protocol in
his 1982 dissertation.
 The first decentralized blockchain was conceptualized by a person
known as Satoshi Nakamoto in 2008.
 In August 2014 the bitcoin blockchain file size reached 20GB.
 In January 2015 the size had grown to almost 30GB.
 By January 2016-2017 the bitcoin blockchain size grew from 50GB to
100GB.
 By 2020 it has exceeded 200GB.
 The words Block and Chain were used separately in Nakamoto’s original
paper but were eventually popularized togetherly as Blockchain.

2. Benefits of Blockchain Technology:
1) Enhanced Security: Consensus Protocols
ensure that data recorded becomes
permanent though accessed by many peers
in the network
2) Trustworthiness: Gives assurity that data is
within members only and remains
confidential.
3) Data Redundancy: Data recorded becomes
permanent and therefore there would be no
duplication of records.
4) Speedy operations: Time consumed in
making reconciliations have been eliminated.
Types of Blockchain networks:
1) Public Blockchains: This chain is open to
common public. There is no privacy for
transactions and this chain consumes a
substantial power.
2) Private Blockchain: This chain is similar to
Public blockchain but is controlled by the
organisation specific and managed by the
members of the organisation. These are
run behind the corporate’s firewall system
3) Permissioned Blockchain
networks:Businesses who setup private
blockchains have permissioned
blockchains. Even public blockchains have
permissioned blockchain network. These
enables them from avoiding certain
category of persons as well as certain
transactions.
4) Consortium Blockchains: Multiple
organisations have such kind of chains
who enable stringent security.

3. Blockchain Applications:
1) Tracing Fresh seafood from the moment it is caught: No involvement of
intermediaries. The catch to supermarkets is the whole chain about
2) Financial Services: Metacoin currency has been developed to remove
technical difficulties arising on financial services.
3) AI and IOT for supply chain: Trace goods and ensure food quality.
4) Fuelling innovation in oil and gas industry: Vertrax and Chateau has
launched first multiblockchain using IBM Blockchain Platform to avoid
supply chain disruptions in bulk oil and gas distribution.
5) Increasing trust in retailer supply relationships: The home depot is using
blockchain technology to gain shared and trusted information on
shipped and received goods to avoid vendor disputes.
6) Many more….

4. Meaning of
Cryptocurrency:
It is a digital virtual currency
secured by cryptography that
is used as a medium of
exchange through a computer
network.
History of
cryptocurrency:
 In 1983,American
cryptographer David Chaum
conceived a type of
cryptographic currency called
Ecash.
 In 1996 The National
Security Agency published a
paper entitled “how to make
mint: the cryptography of
anonymous ecash”
 In January 2009, Bitcoin was
created by Satoshi Nakamoto.
Some Facts regarding Cryptocurrency:
 On 6Th
August 2014 the UK announced its treasury had commissioned
a study of cryptocurrencies and what role they could play in the
economy.
 In June 2021, ElSalvador was the first country to make bitcoins as a
legal tender.
 In August 2021, Cuba regulated the cryptocurrencies
 In September 2021, The Government of China declared all
cryptocurrency transactions as illegal
 On 15th
September 2022, Etherum transitioned its consensus
mechanism from proof-of-work to proof-of-stake in upgrade process
known as the merge.

5. Forms of Cryptocurrency
Types of Cryptocurrency:
 Litecoin
 Bitcoin
 Etherum
 Binance
 Stablecoin
 Dogecoin
 Tether
 Dash
 Polkadot
 Etherum Classic
 Avalanche
 Peercoin
 Ripple
 Cardano
 Uniswap
 Solano
 Monero
Altcoins- Coins other
than Bitcoins
Stablecoins- Coins that
have a stable purchasing
power

6. How Cryptocurrency works:
Mining is the process through which cryptocurrencies are created.
Transactions made with cryptocurrency need to be validated and mining
performs the validation and creates new crypto.
Risks associated with Cryptocurrencies:
 User Risk: No Crypto Transactions can be reversed or cancelled once it
has been sent. About one fifth of all bitcoin transactions are inaccessible
due to lost passwords or wrong addresses
 Regulatory Risk: The regulatory status of crypto currencies is unclear
with some governments.
 Counterparty Risk: People trading in cryptocurrencies rely on exchanges
and custodians for storing their cryptocurrencies. This may result in
thefts or losses.
 Programming Risk: Investment platforms use automated smart contracts
that controls the movement of user deposits. A bug or exploit may cause
to lose their investment
Advantages & Disadvantages of Cryptocurrency:
 Removes single point of failure
 Eliminates the need of trusted third party
 Generates Returns
 Ensures Ease in Convertibility and Remittances(From Fiat Currency to
Cryptocurrency and viceversa).
 Anonymity of Transactions leaving trail of transactions for inspection
 A tool for parking illegal funds and money laundering
 Huge Price volatility

7. Volume of Cryptocurrencies Traded:
A] Prices of Bitcoin(YOY Basis)-
B] Volume of Cryptocurrencies Traded-
0
10000
20000
30000
40000
50000
60000
70000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
OPENING
PRIICES(IN
$)
NAMES OF CRYPTOCURRENCY
Pricesof Bitcoin
Open High Low Close
0
2E+10
4E+10
6E+10
8E+10
1E+11
1.2E+11
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
VOLUME
OF
CRYPTOCURRENCIES
YEARS
Volume of Cryptocurrencies
Bitcoin Tether Etherum USD Binance USD

8. C] Market Cap of Cryptocurrencies-
Notes based on Graphs-
1) The 2011 Opening price of Bitoin has been $0.80 which has increased
387% CAGR basis to $47062. Similarly the Highest Price in 2011 has been
$0.938 which has increased by 386.85% CAGR basis to $47512.
Accordingly the lowest Price in 2011 has been $0.77 which has increased
by 383% CAGR basis to $45391. The closing price in 2011 has been $0.79
which has increased by 386% CAGR basis to $45539. The average volume
of Bitcoins traded has increased by 12381% CAGR basis. The
enhancement of market cap of bitcoins has been 474% CAGR basis to
$865202119216.
2) The 2015 Opening price of Tether has been $1 which has increased
0.0016% CAGR basis. Similarly the Highest Price in 2015 has been $1
which has increased by 0.0433% CAGR basis. Accordingly the lowest
Price in 2015 has also been $1 which has increased by 0.0035% CAGR
basis. The closing price in 2015 has been $1 which has increased by
0.017% CAGR basis. The average volume of Tether traded has increased
by 85257% CAGR basis. The enhancement of market cap of Tether has
been 1561% CAGR basis to $ 81958643217.
3) The 2016 Opening price of Etherum has been $11.92 which has
increased 383% CAGR basis to $3385. Similarly the Highest Price in 2016
has been $12 which has increased by 399% CAGR basis to $3435.
0
2E+11
4E+11
6E+11
8E+11
1E+12
1.2E+12
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Market Cap of Cryptocurrencies
Bitcoin Tether Etherum USD Binance USD

9. Accordingly the lowest Price in 2016 has been $11.32 which has
increased by 387% CAGR basis to $3273. The closing price in 2016 has
been $11.4 which has increased by 395% CAGR basis to $3282. The
average volume of Etherum traded has increased by 534925% CAGR
basis. The enhancement of market cap of Etherum has been 1186%
CAGR basis to $ 394425928251.
4) The 2019 Opening price of USD has been $1 which has increased -
0.033% CAGR basis to $0.99. Similarly the Highest Price in 2019 has been
$1.049 which has increased by -1.5644% CAGR basis to $1. Accordingly
the lowest Price in 2019 has been $0.993 which has increased by -
0.198% CAGR basis to $0.998. The closing price in 2019 has been $1.002
which has increased by -0.0998% CAGR basis to $0.999. The average
volume of USD traded has increased by 1037% CAGR basis. The
enhancement of market cap of USD has been 670% CAGR basis to $
51365407021.
5) The 2020 Opening price of Binance USD has been $1.004 which has
shown negative growth of 0.249% CAGR basis to $0.999. Similarly the
Highest Price in 2020 has been $1.007 which has shown negative
increase of 0.2482% CAGR basis to $1.002. Accordingly the lowest Price
in 2020 has been $0.991 which has shown positive increase of 0.353%
CAGR basis to $0.998. The closing price in 2020 has been $1.001 which
has shown positive increase of 0.00126% CAGR basis to $1.001. The
average volume of Binance traded has been 3368% CAGR basis. The
enhancement of market cap of Binance has been 1083% CAGR basis to $
17471944228.

10. Return over investment-
There are two school of thoughts-
The old school of thought whereby the ROI on investment is gauged
based on the Rate of inflation. If ROI exceeds the rate of inflation the
investment would be found to be desirable.
The new school of thought whereby the ROI on investment would be
gauged by the shortfall of % of increase in money circulation in India
with the inflation rate. Eg- The % of increase in money circulation is 12%
and the Rate of inflation is 6% the your ROI must exceed 6%(12%-6%).
The Returns offered by various assets are as follows-
A] Nifty -
The average Growth of Nifty 50 index has been 15.65% CAGR
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
20042005200620072008200920102011201220132014201520162017201820192020202120222023
Nifty
Nifty

11. B] Sensex-
The average growth of sensex index has been 16.28% CAGR
C] Gold-
The average growth in Gold has been 6.19% CAGR
0
10000
20000
30000
40000
50000
60000
70000
20042005200620072008200920102011201220132014201520162017201820192020202120222023
Sensex
Sensex
0
10000
20000
30000
40000
50000
60000
70000
Gold
Gold

12. D] Bitcoin-
The average growth of Bitcoins has been 386% CAGR
Supply of Cryptocurrencies-
The table below indicates the value at which supply of
each crypto is capped.
Name of Cryptocurrency Capped Value
Bitcoin 21000000
Ripple 1000000000000
Litecoin 84000000
Dashcoin 22000000
Stellar Unlimited Supply
Dogecoin Unlimited Supply
Nxt 1000000000
Peercoin Unlimited Supply
Monero 18400000
0
10000
20000
30000
40000
50000
60000
70000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Bitcoin
Bitcoin

13. Namecoin 21000000
Ybcoin 3000000
Blackcoin Unlimited Supply
Taxability of Cryptocurrencies-
A] In USA-
Cryptocurrencies are treated as “property” therefore any income
Earned through crytocurrencies through specified sources will attract
Taxes. The term “specified sources” means where income is received
As investment income or gains through disposal of the asset.
Instances whereby Crypto income would be treated as investment
Income –
 Getting paid in Crypto
 Refferal Bonuses
 Mining Rewards
 Staking Rewards
 Airdrop
 Hard forks
Instance whereby Crypto income would be treated as capital gains-
 Selling Crypto for Fiat Currency
 Trading Crypto for Crypto
 Spending Crypto for purchase of goods & services

14. On Investment Income tax would be paid based on individual slab rates
Rate if tax applicable to their gross total income. The tax rate on short
Term capital gains would be based on slab rates(the highest being 37%).
However the tax rate on long term capital gains would be either 15% or 20%
Based on taxable value. The capital gain tax free allowance would be $44636.
However if taxable income is up to $492300 the tax rate to be applicable
would be 15% and taxable value exceeding $492300 would be 20%
Although Non fungible tokens deemed collectibles shall attract tax rate of 28%.
NFT(non fungible tokens) certify the ownership of underlying asset. The
underlying asset must satisfy as deemed collectible only after which the NFT
would be considered as deemed collectible.
IRS provides a list of deemed collectibles as follows-
 Gems or precious metals
 Work of art
 Stamps or coins
 Alcoholic Beverages
 Rug or Antique
Certain crypto transactions are tax free-
 Buying crypto in fiat currency
 Holding Crypto
 Moving crypto between wallets
 Gifting crypto(up to $17000)
 Donating Crypto (up to $5000)
Brief Explanation on Taxability of Certain Transactions-
1) Buying crypto with fiat currency- This transaction is tax free only if
crypto is purchased with fiat currency if crypto is purchased with
another crypto then it’s taxable. However the transaction will involve
transfer fees. Generally transfer fees is paid in crypto therefore that may
require payment of taxes. Thus transfer fees would be taxable though
the transaction of buying crypto is not taxable
2) Gifting Crypto- The transaction of gifting crypto is tax free up to $17000.
Any gifts of value exceeding $17000 will attract gift taxes @ 40%and
upon disposal will attract short term or long term capital gains.
3) Mining rewards- Miners process all cryptocurrency transactions. In
return these miners receive rewards in the form of new tokens. These
new tokens received by the miners are taxed as Investment income.
However upon disposal will attract capital gains tax.
4) Staking Rewards- This is a simple lending platform where cryptos are
staked as collateral for earning rewards. Here are rewards are received
in the form of new tokens. These tokens are taxed as income on receipt.

15. One of the popular form of staking rewards is DEFI staking. The term
”DEFI” means decentralized finance whereby it is a platform offering
services such as below mentioned without the requirement of
centralized authority meaning bank or government-
 Lending & Borrowing
 Derivatives
 Margin Trading
 Insurance
Under this platform rewards are received in the form of interest as new
Tokens. The Tax implications of Lending & Borrowing activities are as
Follows-
1) Lending- Crypto are transferred. This will be termed as Capital gains
and capital gains tax would be levied
2) Borrowing- Borrowing will attract capital gains tax upon disposal of
crypto.
3) Interest on Lending & Borrowing- Receipt of new tokens will attract
income tax and upon disposal will attract capital gains tax. However
if Liquidity pool token are received that accrue in value then it
would be deemed as disposal and will attract capital gains tax.
4) Margin Trading- No tax would be imposed when the position
remains open. Upon Closing of the position capital gains tax would
be imposed.
5) Crypto futures- In case you are trading crypto futures then there is
arule that applies whereby 60% of the gains would be taxed as long
term capital gains and balance 40% of the gains would be taxed as
short term capital gains irrespect of the period for which the crypto
was held.
6) Airdrops- Any new tokens received through airdrop will be taxed as
Income based on individual slab rate applicable to person’s gross
total income. However upon subsequent disposal it would be
termed as transfer and accordingly capital gains tax would be
imposed.
7) Hard forks & Soft forks- In case of soft forks no new tokens are
received therefore no tax would be imposed. However in case of
hard forks the situation is reverse since new tokens are received
therefore income tax would be imposed upon receipt of token and
upon subsequent disposal capital gains tax would be imposed.

16. 8) Trading crypto for crypto- The said transaction is viewed separately
as Selling crypto and buying crypto. Selling crypto is brought to tax
as capital gains and buying of crypto is tax free.
9) Donating Crypto- Donating crypto is not taxable up to $5000.
However any donation made above $5000 will be tax deductible.
However will require proper appraisal.
10) Liquidity pool- It is a group of tokens locked in a smart contract.
These liquidity pools act as automated market makers. They pro
Vide liquidity to the market. The liquidity provider is incentivised
with LPtokens in proportion to liquidity provided by it. The receipt
of LP tokens that accrue value would be terned as disposal and will
attract capital gains tax.
Taxable Value-
Any token received would be taxed as income unless it satisfies itself to be a
disposal. The fair market value as on the date of receipt of token will be the
taxable value. However upon disposal the capital gains would be computed as
Follows- Fair market value as on the date of transfer as reduced by Fair market
value of token as on the date of receipt.(In case of gifts cost of acquisition
would be the actual cost to buyer. Further cost of acquisition includes
transaction fees, However it will not include transfer fees.
Taxation of DAO-
DAO stands for decentralized autonomous organisation. This is an organisation
formed by a committee that take decisions on the future of the organisation.
These Committee members are none other than the token holders. They may
receive a share of profits from the activities of DAO or they might sell their
tokens to investors. DAO is an unregistered entity therefore any income
earned by DAO will not be taxed to DAO but any income that passes through
DAO to the members will be brought to tax in the hands of the investors as
either investment income or capital gains tax.
Computing cost of crypto- The method follow for computing cost of crypto
would be as follows- FIFO basis or LIFO basis or Highest expensive cost
Setoff and carry forward of losses- Capital losses will be setoff against capital
gains if any from crypto assets. If there are no capital gains from crypto assets
then capital losses from crypto assets will be setoff against capital gains from
other assets if any. If there is no income under the head capital gains then the

17. capital losses will be set off against taxable income up to $3000. No setoff of
losses is allowed on lost or stolen crypto.
B] IN UK-
Any income received from crypto in the form of either investment income or
capital gains will be brought to tax. Investment income if has the nature of
trading will be termed as trading profits and brought to tax. Any income would
be termed as trading profits if it satisfies three conditions-
If it has been agreed upon; If it is recurring in nature; Personal income tax to be
levied is 20%-45% tax free allowance is up to 12570 pounds. Trading profits or
income from property will not be taxed up to 1000 pounds each. Thus this
means that if person has income from both trading profits and income from
property then tax free allowance would be up to 2000 pounds. Capital gains
tax would be 10-20% and tax free allowance would be up to 6000 pounds.
Certain crypto transactions are treated as income. They are-
 Staking rewards
 Mining Rewards
 Getting paid in crypto
 Airdrop

18. Certain crypto transactions do not attract tax. They are as follows-
 Buying Crypto in fiat currency
 Holding crypto
 Moving crypto between wallets
 Gifting crypto to spouse
Certain crypto transaction would be termed as disposal-
 Selling crypto for fiat currency
 Trading crypto for crypto
 Spending crypto for purchase of goods or services
 Gifting crypto
Brief explanation of terms-
1) Buying crypto in fiat currency- Both the transactions are dealt with
separately. The sale of crypto for fiat currency will attract capital gains
tax . However, buying crypto for fiat currency will be tax free. Howver,
any transfer fees imposed and paid in fiat currency will be exempt
however transfer fees paid in crypto would be brought to tax.
2) Gifting Crypto- The transaction of gifting crypto is tax free only if gift is
made to spouse. Any gifts made to person other than spouse will
attract capital gains tax.
3) Mining rewards- Miners process all cryptocurrency transactions. In
return these miners receive rewards in the form of new tokens. These
new tokens received by the miners are taxed as Investment income.
However upon disposal will attract capital gains tax
4) Staking Rewards- This is a simple lending platform where cryptos are
staked as collateral for earning rewards. Here are rewards are received
in the form of new tokens. These tokens are taxed as income on
receipt.
One of the popular form of staking rewards is DEFI staking. The term
”DEFI” means decentralized finance whereby it is a platform offering
services such as below mentioned without the requirement of
centralized authority meaning bank or government-
 Lending & Borrowing
 Derivatives
 Margin Trading
 Insurance
Under this platform rewards are received in the form of interest as new
Tokens. The Tax implications of Lending & Borrowing activities are as
Follows-

19. 1) Lending- Crypto are transferred. This will be termed as Capital gains
and capital gains tax would be levied
2) Borrowing- Borrowing will attract capital gains tax upon disposal of
crypto.
3) Interest on Lending & Borrowing- Receipt of new tokens will attract
income tax and upon disposal will attract capital gains tax. However
if Liquidity pool token are received that accrue in value then it
would be deemed as disposal and will attract capital gains tax.
5) Airdrops- Any new tokens received through airdrop will be taxed as
Income based on individual slab rate applicable to person’s gross
total income. However upon subsequent disposal it would be
termed as transfer and accordingly capital gains tax would be
imposed.
5) Hard forks & soft forks- Coins received from both hard forks as well as
Soft forks will not attract income tax upon receipt. However, upon
Disposal it will attract capital gains tax.
C] IN CHINA-
Bitcoin is not recognised as legal tender and also not recognised as currency
and therefore classifies as a virtual digital asset.
Following transaction or activities are prohibited by the Chinese government-
 Exchanges if legal and virtual currencies
 Buying and selling of virtual currencies
 Providing information for crypto
 Providing banking services for crypto
 Internet and website companies offering payment services in crypto
The Chinese government taxes a tax rate of 20% on any investment income
earned from crypto.
D] IN INDIA-
Bitcoins and cryptocurrencies are treated as property and are hence classified
as virtual digital asset.
Section 115BBH as well as Section 194S has been inserted to bring to tax
income arising as either investment income as well as capital gains.
Section 115BBH states that any income arising from transfer of virtual digital
asset will be taxed @ 30% along with surcharge as well as cess. This income
will include investment income as well as capital gains. This section will include
income earned on or after 01/04/22.

20. Section 194S states that income arising from transfer of virtual digital asset
shall deduct tax at source on consideration paid or payable to transferor @1%.
However no tax shall be deducted at source on consideration paid to a
specified person up to Rs.50000 in a financial year and consideration paid to a
person other than specified person of up to Rs.10000 in a financial year.
The term “specified person” includes individual/HUF whose gross
turnover/receipts from sale of goods/services does not exceed
1crore/7500000 or where individual/HUF has no income under the head
“profits & gains from business and profession”.
Following incomes would be treated as investment property and will be taxed
at individual rates of taxes-
 Getting paid in crypto
 Staking rewards
 Mining rewards
 Referral Bonuses
Following Crypto transactions are tax free-
 Buying crypto in fiat currency
 Moving crypto within wallets
 Holding crypto
 Gifitng crypto to family
 Gifting crypto to relatives and friends up to Rs.50000
 Gifting crypto on occasion of marriage of individual
 Gifting crypto on inheritance
The term “family means spouse, children, parents, siblings, parents of spouse,
any lineal ascendant and descendant of individual or spouse.
The cost basis to be followed would be either FIFO basis or weighted average
cost basis. No Deduction any expenditure incurred on earning crypto is allowed
under income tax act. Further no set off and carry forwards of losses is allowed
under the act. Further deduction under Chapter VI-A is also allowed under the
act.

21. Crypto Winter-
The term “crypto winter” denotes a prolonged phase of time where prices of
cryptocurrencies remain low.
Recent Crypto winter 2022 has following highlights-
 Leading cryptocurrencies such as bitcoin, etherum, cardano, XRP, and
others down by 55%
 A combination of rising interest rates, lack of risk management, and a
regulatory crackdown on crypto triggered crypto banks.
 Most cryptocurrency companies survived the winter crypto by cutting
costs and laying off employees.
 During the first quarter of 2023 the industry cut another estimated 2400
jobs. In January 2023, Coinbase announced 950 job cuts following 1100
layoffs in June 2022 and 60 job cuts in November.
 London based crypto exchange Luno announced 330 job cuts in January
2023.

22. Cryptocurrency Valuation-
There have been four approaches designed for valuating crypto assets. They
are as follows-
1) Total Wealth Approach- In this approach the world’s total wealth is
computed and in the total wealth share of wealth representing
cryptocurrencies has to be determined and the same is divided by
the total number of bitcoins transacted in a year.
2) Wallet Value Approach- In this no of new accounts are determined as
well as average value added is computed and no of bitcoins to be
transacted is divided
3) Mining cost/profit approach- In this approach bitcoins mined per year
are divided by global energy cost per year
4) All cost approach- In this approach global energy consumed in KWH as
well as energy consumed per year is computed and divided by total
bitcoins transacted in a year.