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24/12/2013 05:31pm

RBI cautions users of Virtual Currencies including Bitcoins against risks

image RBI cautions users of Virtual Currencies including Bitcoins against risks
Mumbai, Dec 24 (KNN) Expressing concern over the rise of "virtual currencies" that is reported to gain popularity among Net users, Reserve Bank of India (RBI) has today cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.
Bitcoin is a decentralised digital currency which is an open source peer-to-peer electronic mode of payment. The risk with virtual currency increases when there is no authorised regulator for what is essentially a private enterprise. Moreover, with an almost zero physical presence the fear is that this could be misused by fraudsters to trap the investors. Its virtual and unregulated nature makes it suitable for online gambling, illegal drugs.
“In its cautionary advice, the Reserve Bank has mentioned that it has been looking at the developments relating to certain electronic records claimed to be “Decentralised Digital Currency” or “Virtual Currency” (VCs), such as, Bitcoins, litecoins, bbqcoins, dogecoins etc., their usage or trading in the country and the various media reports in this regard,” according to an RBI press release.
“The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities,” the release added.
The apex bank further said that VCs may pose several risks to their users, including - VCs being in digital form are stored in digital/electronic media that are called electronic wallets. 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 the VCs held in them.
Payments by VCs, such as, Bitcoins take place on a peer-to-peer basis without an authorized central agency which regulates such payments. As such, there is no established framework for recourse to customer problems / disputes / charge backs etc, RBI cautioned.
“There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value,” the release added.
It is reported that VCs, such as, Bitcoins are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.
There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties 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 Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations. (KNN Bureau)

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