Why Bitcons Are Risky Bet As Per RBI?

The Reserve Bank of India few years back cautioned users, holders and traders of Virtual currencies (VCs), including Bitcoins.

As per RBI, virtual currency holders such as Bitcoins will be exposed to financial, operational, legal, and security related risks.

In India, the creation, trading or usage of VCs such as Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority.

As per RBI, Bitcoins may pose several risks such as:

• Virtual Currencies being in digital form are stored in digital or electronic media called as electronic wallets. As these are not created by or traded through any authorised central registry or agency, the loss of the e-wallet may result in the permanent loss of the VCs held in them.
• Payments made through VCs, such as Bitcoins, will be done on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer in cases such as problems, disputes or charge backs etc.
• 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.
• 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.
• RBI also said 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.

Source: RBI