Virtual currencies are stored in digital format, making them vulnerable to hacking and malware attack, which may also result in permanent loss of money, warns the finance ministry
The government of India has cautioned people against investing in cryptocurrencies such as bitcoins, which it says are like Ponzi schemes.
In a statement issued today, the Ministry of Finance says there is a real and heightened risk of investment bubble of the type seen in Ponzi schemes. This may result in sudden and prolonged crash exposing investors, especially retail consumers, and may lead to loss of their hard-earned money.
“There has been a phenomenal increase in recent times in the price of virtual currencies, including bitcoin, in India and globally. Virtual currencies (VCs) don’t have any intrinsic value and are not backed by any kind of assets. The price of bitcoin and other VCs, therefore, is entirely a matter of mere speculation resulting in spurt and volatility in their prices,” reads the statement.
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Consumers need to be alert and extremely cautious to avoid getting trapped in such Ponzi schemes, the statement warns. VCs 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 virtual currencies are encrypted, they are also likely to be used to carry out illegal/subversive activities, such as terror-funding, smuggling, drug trafficking and other money-laundering acts.
The ministry also makes it clear that VCs are not backed by the government fiat, and so are not a legal tender in India. Hence, VC cannot be considered currencies. These are also being described as ‘coins’. However, there is no physical attribute to these coins. Therefore, virtual currencies are neither currencies nor coins.
“The government or the Reserve Bank of India or RBI (the country’s central bank) has not authorised any VCs 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 VCs,” the statement cautions.
The government also informs that the users, holders and traders of VCs have already been cautioned thrice — in December 2013, February 2017, and December 2017 — by the RBI about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to by investing in bitcoin and/or other VCs. The RBI has also clarified that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with bitcoin or any virtual currency.
“The government also makes it clear that VCs are not legal tender and such VCs do not have any regulatory permission or protection in India. The investors and other participants therefore deal with these VCs entirely at their own risk and should best avoid participating therein,” the government further warns.
India currently has no regulation for cryptocurrencies, and like other global policymakers, it is seeking to understand how to supervise a market that many feel is a speculative bubble. There are however quite a few cryptocurrency exchanges operating in India, such as Zebpay, BuyUCoin, and Coinsecure.in.
Also Read: The alarming environmental impact of Bitcoin mining
On Thursday, South Korea’s government said it will further impose new measures to regulate cryptocurrency trading within the country.
Recently, David Gledhill, Group Chief Information Officer and Head of Group Technology and Operations at DBS, one of Asia’s largest banks, called bitcoin a Ponzi scheme or financial scam.
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