The Reserve Bank of India, on Tuesday, 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 public 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 central bank 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 apex bank highlights problems such as losses arising out of hacking, no sources of customer recourse and the general financial volatility surrounding Bitcoins.
“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,” the RBI said in a statement.
“It has also been reported that Bitcoins are being traded on exchange platforms, whose legal status is also unclear. Hence, the traders of virtual currencies are exposed to legal as well as financial risks,” it added.
Gaining currency 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 35,648 downloads in India since the launch of Bitcoin on November 9, 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.
“There have been several media reports on the usage of Bitcoins for illicit and illegal activities. The absence of information of counterparties could subject users to unintentional breaches of anti-money laundering,” the central bank said.
The mainstream Bitcoin community in India has welcomed the RBI’s shift from its earlier ‘wait-and-watch’ policy, and believes that specific regulation may be in the offing.
“Of course, it is good that the RBI has shifted from not saying anything to warning people of the risks involved. Yes, trading platforms in India do not have approval, as there is no regulation in the first place! We believe this advisory notice may be a precursor to some regulation,” said Satvik V, Founder, CoinMonk Ventures, who organised India’s first Bitcoin conference earlier this month.