Reserve Bank warns against Bitcoin use

• The RBI has warned the public against the use of virtual currencies such as Bitcoin, pointing out that users expose themselves to potential financial, legal and security related risks.
• The advisory comes after the borderless digital currency has begun to gain widespread acceptance in India, despite poor Internet penetration and a natural scepticism to assets not backed by tangible entities such as land.
• The RBI also said that it had been examining the issues associated with the usage of virtual currencies under the legal and regulatory framework of the country. In its list of potential risks, the RBI has highlighted problems such as losses arising out of hacking, no sources of customer recourse and the general financial volatility surrounding Bitcoins.
• According to RBI, ‘the creation, trading or usage of virtual currencies including Bitcoins are not authorised by any central bank or monetary authority. As such, there is no established framework for recourse to customer problems’. Also as Bitcoins are being traded on exchange platforms, whose legal status is unclear, the traders of virtual currencies are exposed to legal as well as financial risks.
• Bitcoins, and other virtual currencies, have been gaining currency quickly in India. According to SourceForge, an online platform that connects consumers to open-source projects such as Bitcoin and facilitates client downloads, there have been more than 35,000 downloads in India since the launch of Bitcoin in November, 2008.
• A number of India-based trading platforms and exchanges have sprung up over the last six months, catering to Indian users by allowing them to purchase Bitcoin in rupees. The RBI, however, has pointed out that no regulatory approval has been obtained by any entities that carry out such activities.
• Also there have been several media reports on the usage of Bitcoins for illicit and illegal activities. Hence the RBI has warned that, the absence of information of counterparties could subject users to unintentional breaches of anti-money laundering.