The Reserve Bank of India has issued a warning against the potential financial,operational, legal, customer protection and security risks related to virtual currencies such as Bitcoin, Litecoins, Bbqcoins, Dogecoins etc.
Although it hasn’t announced them to be illegal, the press release clearly states that virtual currencies as a medium for payments were not authorised by any central bank or monetary authority, and cautions users, holders and traders of virtual currencies.
RBI has given the following pointers to highlight the probable threats that virtual currencies (VCs) could cause.
VCs are stored in digital/electronic wallets and hence are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc., leading to permanent loss of money
Payments take place on a peer-to-peer basis without an authorised regulating central agency. Thereby no established framework for recourse to customer problems/disputes /chargebacks etc.
The users are exposed to potential losses on account of volatility in value of VCs.
VCs, such as Bitcoins, are being traded on illegal exchange platforms as well. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.
The absence of information of counterparties in peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
Another important issue not covered by RBI is that there is no Foreign Exchange regulation for these digital currencies, for instance a person buys Bitcoin(BTC) at a low exchange rate legal currency and sells it at a higher valued currency elsewhere, this could lead to a loss of revenue to individual economies.
Last week The Hindu reported that RBI says it is adopting a “wait and watch” policy towards bitcoins and would probably step in when it gets the first sniff of abuse.
Forbes covered a report that calls Bitcoins more of a “speculative investment than a currency”, as due to the above mentioned risks, it can’t replace the conventional existing currency system.
These virtual currencies, particularly Bitcoin, have been making a lot of news lately. Including in the online black market operation, Silkroad, where Bitcoins were being used to trade illegal drugs. FBI closed these activities down in October and seized USD 28.5 Mn worth of Bitcoins.
Unocoin: Bitcoin wallet and exchange service for users in India
A new Bitcoin exchange service called Unocoin, has been launched in Bangalore recently, as per a report by CoinDesk. Its aims is to provide a Simple, Safe and Secure Way of Buying, Selling and Storing Bitcoins in India.
Currently it is running on a trial basis and new verified users are limited to buying/selling 10 BTC per day. A PAN card is required for verification and all transactions on the portal are handled by the respective bank. Bitcoins could be sent via email as well irrespective of whether the recipient has an existing bitcoin wallet with Unocoin or not.
Bitcoins gaining traction in India
Besides Unocoin, a number of other virtual currencies related organisations are being set up in India, such as BuySellBitcoin, CoinMonk, MadOverCoins, Laxmicoin and so on. These are trying to promote VCs, educate people about the virtual currencies, and facilitate transactions for the same.
According to Coindesk, there are a number of Bitcoin communities in different cities in India, with 300-400 members each.
As per Economic Times, a number of new entrepreneurs from different business fields are increasingly accepting Bitcoins. Despite of their volatile nature, many are still seeing great future potential in the same.
Tarun Thadani, a proprietor of a pizza outlet in Mumbai, announced that its customers can pay in bitcoins instead of rupees, thereby starting a new trend of digital currency in India.
Although the RBI has made the announcement to ensure that the users or enthusiasts of virtual currencies take precautions while dealing with the same, it is still uncertain how Bitcoins and other virtual currencies will fare in the country, as their penetration is still in the nascent stage.
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