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India’s central bank warns people on risks of Bitcoin and other virtual currencies

Bitcoin in India

China has banned Bitcoin from being used as a currency; Germany has permitted its transactional use; Singapore is keeping hands-off. India, meanwhile, has yet to make a ruling, but it’s keen to make the public aware of the dangers.

Today, the Reserve Bank of India (RBI), which is the country’s top bank and financial regulator, has come out with a cautionary note on the risks involved with Bitcoin and other virtual currencies. The RBI details five key risks in acquiring the currencies, whether for trading, investing, or making transactions; the idea is to educate Indians and prevent the kind of financial losses seen in today’s dogecoins heist.

Many bitcoin. So risk. Such confuse. Wow

The RBI’s five points are worth reading in full:

  • Virtual currencies 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 authorized central registry or agency, the loss of the e-wallet could result in the permanent loss of the virtual currencies held in them.

  • Payments by virtual currencies, 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.

  • There is no underlying or backing of any asset for virtual currencies. As such, their value seems to be a matter of speculation. Huge volatility in the value of virtual currencies has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.

  • It is reported that virtual currencies, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of virtual currencies on such platforms are exposed to legal as well as financial risks.

  • There have been several media reports of the usage of virtual currencies, 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.

India’s central bank adds that it’s “presently examining the issues associated with the usage, holding, and trading of VCs [virtual currencies] under the extant legal and regulatory framework of the country.” The RBI – like all other financial regulators worldwide – must be concerned that things like Bitcoin can be used for money laundering, and that they might even destabilize an economy in which their usage becomes commonplace.

(Editing by Steven Millward)

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