Beware of Bitcoin, says RBI

With Bitcoins hitting a record high of $11,850, the Reserve Bank of India (RBI) has cautioned people about holding, trading or investing in virtual currencies, including Bitcoins. The central bank has also clarified that it has not given any licence /authorisation to any entity/company to operate such schemes or deal with Bitcoin or any other virtual currency (VC).

The central bank in a statement on Tuesday cautioned against potential economic, financial, operational, legal customer protection and security related risks associated in dealing with virtual currencies.

In the wake of significant spurt in the valuation of many virtual currencies and rapid growth in initial coin offerings, RBI reiterates the concerns conveyed earlier in February and before that in December 2013, the statement added.

Bitcoin prices have seen a spectacular rise in 2017 repeatedly, crossing all-time highs this year. The cryptocurrency powered to a record high of $11,850 on Tuesday continuing its surge from below $1,000 at the start of the year. The cryptocurrency was last up 2 per cent on the Luxembourg-based Bitstamp exchange.

In its earlier warning, the RBI had said that Bitcoins/virtual currencies may pose several risks to their users. The virtual currencies, being in digital form, are stored in digital/electronic media that are called electronic

Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of virtual currency held in them, the RBI had said.

Payments by virtual currencies such as Bitcoins take place on a peer-to-peer basis without an authorised central agency. As such, there is no established framework for recourse to customer problems/disputes/charge backs etc. Moreover there is no underlying or backing of any asset for virtual currencies. Their value seems to be a matter of speculation.

Huge volatility in the value of virtual currencies has been noticed in the recent past. Thus, users are exposed to potential losses on account of such volatility in value. The absence of information of counter parties in such 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, the RBI had said earlier.