The Reserve Bank of India (RBI) has warned users of Bitcoin and other virtual currencies that they may be taking undue risks with these “Virtual Currencies”.
(Also read: The Bitcoinundrum: To Buy or Not To Buy Bitcoin?)
There is no approval for using such a currency as a payment mechanism, says RBI. That doesn’t mean you can’t use it for payment (yet) but they’ve warned that:
- They are prone to be stolen, since they’re purely digital and kept in online wallets.
- Since there’s no central authority in Bitcoin, there’s no recourse if you have issues with payments or disputes. (Which exists with regular currency - the best you can do is ask the shopkeeper to return that extra-100 rupee note you gave)
- There is no “underlying or backing” for such currencies. (Someone please tell RBI that there’s nothing “backing” our currency either - what they think is “backing” is debt of either the Indian government - rupee bonds - or of the US government - forex reserves. Those aren’t real assets, they are promises). So they’re very speculative and volatile.
- Legal issues remain since exchange platforms could like in different or dubious legal jurisdictions.
- You could use bitcoin to do illegal stuff. So you could be violating anti-money laundering or financing of terrorism laws.
RBI hasn’t “banned” BitCoins. They have just warned that if you should use them, you face these risks.
RBI has said that it’s looking at things in more detail as well.
My view: if they should become a payment mechanism of any real sort, my feeling is that the RBI will come in and regulate strongly. They didn’t allow Paypal to be a proper payment mechanism unless it stored received money in a bank account according to the Payment and Settlement Systems Laws. There is no way they’ll allow this to easily take over.
We should learn from the technology that Bitcoin provides, and create mechanisms for easier KYC (for instance I should be able to one-click send my KYC documentation to anyone and given the public blockchain concept, it is easily verifiable that I did send it) or for non monetary transactions.
For money, we have a fabulous system by the NPCI which is the backbone of all bank accounts - this should be extended to all forms of money transactions (mutual funds, post office deposits and all that) so that you could instantly transfer to, or from, any of these systems.
BitCoin is a pain in that wallets are stolen (even if you don’t reveal your password), and there is no ability for the system to give credit. But if it becomes big, I believe the RBI will ban or hugely regulate it.