RBI cautions users of Bitcoins, other virtual currency about potential risks

Written by ENS Economic Bureau | Mumbai | Updated: Dec 25 2013, 14:09pm hrs
The Reserve Bank of India (RBI) on Monday warned users, holders and traders of virtual currencies, including bitcoins, of financial, operational, legal, customer protection and security related risks.

The RBI said virtual currencies as a medium for payments were not authorised by any central bank or monetary authority.

The central bank said it was keeping watch at the developments relating to certain electronic records claimed to be decentralised digital currency such as bitcoins, litecoins, bbqcoins, dogecoins and their usage or trading in the country.

Bitcoins are digital or virtual currency that uses peer-to-peer technology to facilitate instant payments. Bitcoin is an alternative currency, which uses cryptography for security, making it difficult to counterfeit. Bitcoin issuance and transactions are carried out collectively by the network, with no central authority.

As such, there is no established framework for recourse to customer problems/disputes/chargeback, etc, the RBI cautioned.

The total number of bitcoins that will be issued is capped at 21 million to ensure they are not devalued by limitless supply. Currently, it is estimated that there are 12 million bitcoins in circulation.

RBI said there were several media reports of the usage of virtual currencies, including bitcoins, for illicit and illegal activities under several jurisdictions.

Bitcoins came under scrutiny as they were used extensively on Silkroad, an online black market for illegal drugs. Silkroad was shut down by the FBI in October and the agency seized $28.5 million worth of bitcoins.

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, the RBI statement added. fe