As regulatory glare intensifies on bitcoins due to possible money laundering, cyber security and other risks, over five dozen other virtual currencies have come under the scanner and include a desi version by name of ‘laxmicoin’
The total value of these 67 digital currencies in circulation over internet has reached nearly $ 13 billion (over Rs. 80,000 crore), out of which bitcoin alone accounts for over $ nine billion, according to market estimates.
However, total value of bitcoin and other such virtual currency trades in India is estimated to be worth only a few crores as of now, although NRIs living abroad are expected to be dealing with bitcoins in a big way.
According to those dealing in bitcoins and other such currencies, RBI’s caution notice and action initiated by enforcement agencies in the country has been a major dampener and could come in way of launch of Indian versions of such currencies and that of exchanges providing trading platforms.
A number of bitcoin operators in India have begun suspending their business following RBI’s warning against use of such virtual currencies due to potential money laundering and cyber security risks.
Bitcoin is a virtual currency that can be generated through complex computer software systems with solutions shared on a network, although the process is complex and such ’mining’ can be done only on very powerful servers.
Within four years of coming into existence, bitcoin has become the world’s most expensive currency and its per unit value soared past $ 1,200 level or about Rs. 63,000 recently, although the prices have now slipped below Rs. 50,000 level.
There was a phenomenal surge in the exchange rate for bitcoin from little over $ 200 to well past $ 1,000 during November, but there has been an extreme volatility since then and the RBI’s warning has further added to its woes in India.
According to experts and regulatory officials, different virtual currencies continue to pop up almost everyday exposing users to unintended risks and also losses arising out of scams perpetrated by cyber criminals looking to make a quick buck.
While four-year old bitcoin shot to prominence with its per unit value soaring past $ 1,200 level recently, the heavy interest in such cryptocurrencies has led emergence of namesakes like Ripple, Litecoin, Mastercoin, Nxt, Dogecoin etc. There is laxmicoin, which its promoters term as India’s very own digital currency and claim it would be launched soon.
The proliferation of new currencies is being linked to the complexities involved in the way bitcoin is ‘mined’ The newer avataars are comparatively much easier to create, word-of-mouth publicity and a rush of speculators has ensured they are catching up much faster, traders said.
While absence of information of counterparties while trading could subject users to breaches of Anti—Money laundering laws, account opening also exposes them to risk of identity theft.
Most platforms require users to upload images of government photo IDs (passport, driver’s licence etc), proof of address documents (utility bill, vehicle registration etc) as well as online banking account details.
While the US has declared that all prevailing money laundering laws would apply to bitcoins, China has asked its banks and other financial institutions not to deal in bitcoins and the public has been asked to do so at their own risk.
Earlier this month, the European Banking Authority said thefts from digital wallets have exceeded $ 1 million in some cases and traders are not protected against losses.
On Christmas day, hackers digitally robbed 21 million Dogecoins that was reportedly created earlier this month to poke fun at Bitcoin.
While RBI is yet to come out with a clear regulatory framework for bitcoins, within days of its advisory entities such as buysellbitco.in, INRBTC and unocoin suspended operations, temporarily or indefinitely, while websites of a few others have gone down.
A team of Enforcement Directorate (ED) officials last week raided two offices in Ahmedabad for illegally trading of bitcoins through their websites.
“With the shutdown of these India-based exchanges, consumers will now seek other exchanges in order to purchase Bitcoin, driving business elsewhere. To be fair, RBI’s actions are expected. Bitcoin is a new technology and its nature is very risky because its still in its infancy,” said Jinyoung Lee Englund, Director of Public Affairs, Bitcoin Foundation.
Soon after global monetary authorities issued warnings or advisories, values of virtual currencies slumped and have become very volatile with daily swings of 5-20 per cent.
Bitcoin trades at $ 740, down 25 per cent from its peak.
“The message of central banks is one of caution, reminding consumers that Bitcoin is not government sanctioned or insured and that any involvement would incur personal financial risk. Infrastructure needs to be built and the foundation is hard at work educating regulators, lawmakers, and the public...,” Lee Englund said.
A virtual currency is a form of unregulated digital money, not issued or guaranteed by a central bank, which can act as a means of payment. It is now increasingly possible to use virtual currencies as a means to pay for goods and services with retailers, restaurants and entertainment venues.
Virtual currencies can be bought at an exchange platform using conventional currency. They are then transferred to a personalised account known as a ‘digital wallet’ Using this wallet, consumers can send virtual currencies online to anyone else willing to accept them, or convert them back into a conventional fiat currency.