RBI rings alarm bells on bitcoins, cautions investors

Mumbai: Cryptocurrency bitcoin may be eyeing a record $12,000, but the RBI is not impressed. The central bank has cautioned bitcoin and other cryptocurrency enthusiasts that they face potential risks, including financial, legal and those related to customer protection.

In a statement, the RBI said that it has not given any licence or authorisation to any entity to operate schemes or deal with bitcoin or any virtual currency. The statement was issued in the wake of a significant spurt in the valuation of virtual currencies and rapid growth in Initial Coin Offerings (ICOs), the RBI said. An ICO is an unregulated means by which funds are raised for a new cryptocurrency venture.

India is not the only country to express caution on bitcoins. Several countries have placed restrictions on them as well, including Russia, China, Iceland, Bangladesh, Sweden, Thailand and Vietnam. However, the US and the UK have a much more positive approach to bitcoins with several large US corporations accepting payments in bitcoins.

While

cryptocurrencies

have not been legalised, there are no laws against investing or dealing in them. Even in China, which has cracked down on bitcoin exchanges, there is no legal bar on the cryptocurrency. One fear of regulators is that the virtual currency could be used as payment for illegal activities. Hackers who deployed the WannaCry virus collected ransom in bitcoins from their victims to unlock computers.

In April, the government had set up an interdisciplinary committee, headed by Dinesh Sharma, special secretary in department of economic affairs, to look into cryptocurrencies. Although the committee’s recommendations have not been made public, there have been reports that the panel is opposed to legitimising cryptocurrencies. Last week, finance minister Arun Jaitley had said that the government had not granted any legitimacy to cryptocurrencies.

Meanwhile, the RBI has constituted a group to look at the possibility of having a government-backed cryptocurrency which can be an alternative to the rupee for digital transactions. It is estimated that there are around 500 merchants who accept bitcoins. Most of these are proprietorship firms with owners who are cryptocurrency enthusiasts. However, the usage of bitcoins in commerce in India is low and most of the holdings are more in the nature of investments.