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Use of Bitcoin, other virtual currencies not authorised by RBI, says Govt.

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Demonetisation of Rs. 500 and Rs.1000 currency notes by Government of India along with an emphasis to move towards cashless economy proved as a boon for the entire digital payment industry. Banking transactions through internet as well as monetary transactions through various e-wallets have increased manifold post 8th November 2016.

  • In backdrop of these developments, a question was raised in Rajya Sabha asking the Govt. to clear its stand on status of virtual currencies including Bitcoin in India. Written reply to this question was provided by Arjun Ram Meghwal – Minister of State for Finance.
  • Reply mentioned that Reserve Bank of India (RBI) has cautioned about potential legal, financial and security risk arising on account of holding, investing or trading in virtual currencies including Bitcoin.

Why has RBI cautioned against the use of Bitcoin and other virtual currencies?

Out of the several shortcomings of virtual currencies listed out by RBI, following are the most prominent ones:

  • As these currencies have an electronic origin, they are vulnerable to hacking and malware attacks. Any major problem of this nature may even eliminate the existence of such currencies.
  • The exchange of virtual currencies takes place within a network of anonymous users. Some users within these networks may be involved in criminal activities. Thus any innocent user may get indirectly involved in such activities while dealing in virtual currencies.
  • It is practically impossible to solve disputes involving virtual currencies as they do not fall Use of Bitcoin, other virtual currencies not authorised by RBI, says Govt.under any regulatory jurisdiction and are neither backed by any central authority.
  • Just like any investment or asset class, value of virtual currencies too is prone to random price fluctuations owing to speculator interests of participants.

What is Bitcoin?

In simple words, Bitcoin is a kind of digital currency, which is created, stored and exchanged electronically. Unlike official currencies of countries, Bitcoin does not have any central bank or monetary authority backing it.

  • Thus it is also referred to as decentralised digital currency. It was introduced during 2008-2009 by an unknown group of programmers. Bitcoin is used as a payment mode for buying things electronically.
  • Number of vendors and merchants accepting Bitcoin has been continuously growing worldwide. Its value is driven not only by demand and supply but also news related to its acceptability.
  • As on 30th March 2017, approximate value of 1 Bitcoin = INR 67300/-