New Delhi: Government has warned people against risks in investing in ‘Virtual Currencies’. In a statement released here the Ministry of Finance has said that virtual currencies are like ‘Ponzi Schemes’.
Ministry of Finance issued a statement that says, “There has been a phenomenal increase in recent times in the price of Virtual ‘Currencies’ including Bitcoin, in India and globally. These currencies don’t have any intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other virtual currencies therefore is entirely a matter of mere speculation resulting in spurt and volatility in their prices. There is a real and heightened risk of investment bubble of the type seen in ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money. Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes. These currencies are stored in digital / electronic format, making them vulnerable to hacking, loss of password, malware attack etc. which may also result in permanent loss of money. As transactions of these currencies are encrypted they are also likely being used to carry out illegal / subversive activities, such as, terror-funding, smuggling, drug trafficking and other money-laundering Acts.”
Virtual currencies are not backed by Government fiat. These are also not legal tender. Hence, these are not currencies. These are also being described as ‘Coins’. There is however no physical attribute to these coins. Therefore, Virtual ‘Currencies’ are neither currencies nor coins.
Government or Reserve Bank of India has not authorised any of these currencies as a medium of exchange.
Further, the Government or any other regulator in India has not given license to any agency for working as exchange or any other kind of intermediary for any virtual currency. Persons dealing in them must consider these facts and beware of the risks involved in dealing in virtual currencies.
Users, holders and traders of virtual currencies have already been cautioned three times, in December in year 2013 and February as well as December this year, by Reserve Bank of India about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in Bitcoin or other virtual currencies.
Earlier, RBI has also clarified that it has not given any licence / authorization to any entity / company to operate such schemes or deal with Bitcoin or any virtual currency. The Government also made it clear that these currencies are not legal tender and do not have any regulatory permission or protection in India. The investors and other participants therefore deal with these instruments entirely at their risk and should best avoid participating therein.