RBI Warnings on Bitcoin Users and Trading in India
In the past few years, one term has taken the financial world by storm. “Bitcoin”. There has been such a craze for bitcoin that has never been seen before in anything. Its value has been soaring high and it changes by a massive factor within hours or days. Bitcoin is a cryptocurrency system and a payment system founded by a group of people under the name or by a person named Satoshi Nakamoto in 2009. No one till date has been able to find out who Nakamoto is? Although, several people have tried to take the claim for being the inventor of Bitcoin.
What is a Bitcoin?
Bitcoin is a peer to peer network and is a decentralized currency, which means there is no bank or any authority or administrator which looks over or keeps a check on it. The transactions take place solely between user to user. The transactions are always recorded and verified by the use of cryptography in the network nodes and the ledger is publicly distributed, available for everyone to see known as blockchain.
Also read: What is Bitcoin? Facts about Bitcoin Trading
One gets bitcoins by mining them. Mining is the process of lending computing power to solve complex computational problems. This results in the miners getting rewarded with bitcoin. Bitcoins have been very controversial throughout its existence. Many governments have banned the use of bitcoins and most governments don’t recognize it as a legal form of currency. Bitcoins have been popular because they took the power of controlling money and how it moved from banks and central organizations directly to the people.
Bitcoins have soared in value and recently crossed the $17000 mark. But business analysts are still very sceptical. Warren Buffett, business tycoon and one of the richest men in the world, called bitcoins a bubble. Nobel prize-winning economist Joseph Stiglitz went as far as asking bitcoins to be banned. The Reserve Bank of India too had issued a warning in 2013 about bitcoins and investing and transacting in them. Recently, the RBI again issued a warning this year along with Finance Minister ArunJaitley calling bitcoins not a legal tender in the Rajya Sabha.
RBI Guidelines to Bitcoin Users In India
Here are few points the RBI stressed on
- Virtual currency or Decentralized Digital currency are stored in electronic wallets mostly (hot storage). So the wallets being connected to the internet are vulnerable to hacking, malware attacks, loss of password or compromising user credentials. The loss of e-wallets could thus result in losing the cryptocurrency in them forever as there is no central authority to oversee them. Very recently, many computers around the world were affected by the WannaCry malware which asked for bitcoins in return for decrypting their data.
- The bitcoin transactions are not done via any centralized authority or framework which results in no proper system for customer disputes or chargeback as the payments are not looked upon by any authorized agency.
- There is no banking value or asset behind the cryptocurrencies. Most of their value is due to speculation whether it increases or decreases. There have been cases of huge volatility in the past so users can expect the same even now as well.
- There have been many reports of bitcoins being used for illegal transactions or for purchasing drugs and arms. Bitcoins are used rampantly in the deep web for all sorts of illegal activities like drugs, hiring hitmen, buying arms and ammunition, child pornography and many others. The absence of any counterparty in these peer to peer transactions where everyone is anonymous could lead to users unintentionally breaking combating the finance of terrorism and anti-money laundering laws which could lead to severe consequences for the users.
- The legal status of bitcoins is very unclear in most jurisdictions. So the traders who trade in them or mine them are liable to many legal and financial risks in the future which will lead loss of money for the users.
Advise to Bitcoin Users
While Bitcoins are very profitable to people and have seen a massive surge in its prices, the financial aspect of it is majorly unclear and most users just buy bitcoins without understanding its consequences later. So it is advisable that you read out the important information properly before investing in cryptocurrency or even mining them so that you can prevent falling into trouble later.