DeFi 101 😎 (Part 1 of 2)
a step-by-step guide to owning crypto
GM friends 👋!
Some of you might have been expecting this publication over the weekend but I got super busy with shifting into my new house and had very little time on hand to write but now it’s all set and ready to go!
Quick primer: This 2-post series is going to walk you through on how to buy crypto on a centralized exchange, create a web3 wallet (a detailed post on wallets later), transfer your coins to the wallet and interact with DeFi. If you simply follow this post, you’ll be within 0.03% of the human population who has interacted with DeFi🤯. That’s how early we are!
Since we’re going to talk about DeFi, let’s look at the chart below. DeFi or De-centralised Finance really took off in the summer of 2020, and that phase is often recalled as the ‘DeFi Summer’. The total value locked (TVL) is basically US$ locked up in smart contracts to facilitate financial activities like lending, borrowing, staking, insurance, etc. Going from $8.5B TVL to $85B TVL in ~1.5 years is staggering growth for any ecosystem and something that we probably should pay attention to.
Indian Government’s stance on crypto:
As we know, the budget was presented by the Finance Minister on Feb 1 and there were some key takeaways for crypto.
GoI finally acknowledged crypto as an asset so that kills all the FUD about crypto being illegal/unlawful to own.
Govt. would tax the profit/income in crypto at a flat rate of 30% regardless of your income tax bracket. Pretty brutal in my opinion for an asset with high risk factor. So unless you sell your coins, you won’t have to pay taxes! 💎🙌
There still isn’t much clarity on how they’ll be tracking transactions on-chain, i.e., once you move your coins from exchanges into wallets, the process to track and tax becomes 10 times difficult.
Govt. has also proposed to introduce a CBDC - Central Bank Digital Currency aka the Digital Rupee. Again, there isn’t enough clarity on how this would work out but it looks like the RBI will follow the same path as China did with its CBDC.
Just to be clear, CBDC is not a cryptocurrency. It is a digital currency that’s native to a govt controlled blockchain, issued by the Reserve Bank of India and just like paper currency, the institution can inflate it at will.
These proposals are yet to become a law so we will likely see changes made before that happens. I will share an update in a future post once that happens. For now, we are perfectly okay to create an account and get started with buying computer coins.
Create an account on CEX
You need to pick an exchange like Binance, Coinbase, WazirX (Binance has a controlling stake), etc and set up an account on the platform. They have a standard KYC process where you need to provide details like your PAN number, Aadhar details and your image for verification.
You are free to pick any of the exchanges out there but I’d recommend going with either Coinbase or Binance simply because they offer withdrawal options for more coins and have large trading volume that allows them to keep their rates low. In a market crash, these exchanges are less likely to freeze selling/buying of tokens compared to their Indian counterparts. For the purpose of this post, we’ll stick with Binance.
Once you’re set up with your account, there are 3 tokens you can purchase directly with INR - BTC, ETH and USDT. If you wish to buy any other token like SOL, MATIC, etc, you need to buy USDT and then convert it into your desired token. The convert feature is available within the app.
Now, there are 2 modes of payment available-
P2P UPI payment: The app connects you to a seller and acts as the escrow holding the assets of the seller until the transaction is complete. The seller provides his/her UPI ID and you can transfer the amount straight to them using PayTM or GPay and hit ‘Transferred, Next’ and then wait for a few minutes for confirmation from the other side. This takes about 3-5 minutes and you’ll receive your crypto in the wallet.
P2P IMPS/Bank Transfer: If you wish to send money via IMPS or Bank Transfer mode, select that option and you’ll receive the account details of the seller. Go to your banking app and enter those details to transfer the money and hit ‘Transferred, Next’. In the meantime, you can notify the seller on the Binance app in the chat section as well. This is pretty straightforward and once the confirmation is made, Binance will release the crypto into your wallet.
That’s all you have to do to get started. You can now buy/sell your favorite tokens as and when you wish to. You can view your portfolio by clicking on the wallet icon at the bottom right corner of the app (image attached for reference). Congrats on going from a no-coiner to xyz owner! 🔥
The image above is not of my portfolio and is not supposed to be a recommendation either. I’m a degenerate gambler and do not shill coins. Please do your own research🙏.
The above method works perfectly well if you wish to buy BTC, ETH or USDT. Let’s say you wish to buy MATIC or any other token, just follow the steps below.
Buy USDT using the same method explained above. Click on ‘Buy’ and enter the amount you wish to invest. I recommend buying at least 10 USDT. While converting USDT to other tokens, Binance usually has an arbitrary threshold below which you won’t be able to convert so buy 10 USDT at the minimum for conversion to any token.
Now go to the home page and click on the token you wish to buy, for example MATIC, and hit ‘Convert’. Enter the USDT amount you wish to convert into MATIC. You’ll see the conversion rate below. If the rate is acceptable to you, click on ‘Confirm’ and voila! You’ll now be able to view your asset in the wallet tab.
If you’ve never bought crypto and are interested in doing so, I hope this post helps you get started. For any questions related to purchase or selling, feel free to post it in the comments section (recommended so others can benefit too) or reply to this email. I will get back as quickly as possible.
This was Part 1 of 2 on getting started with DeFi. In the 2nd part of ‘DeFi 101’, we’ll go about setting up a web3 wallet and transferring tokens into your own custody and making our first interaction with DeFi.
The flow and the details made it easy for me to venture into buying cryptocurrency for the first time. Thanks, Shuvam!