RBI puts the brakes on the bitcoin train in India

Monday, 20 January 2014 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Enthusiasm over bitcoins has dampened in India after the country’s central bank cautioned investors to be wary of using virtual currency because of the associated security, financial and legal risks. Bitcoin, which was introduced in 2009 by a developer known as Satoshi Nakamoto (the developer’s real name or names is unknown), is an online currency created by users, also called miners, by solving complicated math problems on the Internet. The currency is designed in a way that will produce 21 million coins that can be traded or, increasingly, used to buy things. (For a detailed explanation, visit bitcoin.org)

The Reserve Bank of India’s advisory prompted some Indian bitcoin traders to suspend their operations, even as regulators seek clarity on digital currencies and ways to regulate them. The RBI’s worries include taxation, security risks, losses due to the volatility and money laundering. While regulators have not deemed virtual currencies illegal, India’s law enforcement agency, the Enforcement Directorate, raided the offices of a few companies that operate bitcoin trading websites. While this might slow the adoption of bitcoins as a method of exchange, some see it as a necessary step in the currency’s evolution. “This is not an attack on bitcoins, but one of its outcomes. They (regulators) want to prevent money laundering and if you want to stop someone from using it in an illegal fashion, they seem to be going down the right path,” said Benson Samuel, a bitcoin developer who runs coinsecure.in. He added that RBI’s advisory may slow down the adoption of virtual currencies in India. Like the RBI, global regulators are wary of the currency, which is not subject to the same kind of regulations as traditional money. China has banned banks from clearing transactions in bitcoins, while Switzerland has said they are prepared to treat it as a foreign currency. Only the United States [and Canada] supports the coin openly. Indian Revenue Services officials visited CoinMonk Ventures, which runs bitcoin buying and selling website unocoin.com, in December, seeking information on the digital currency, said its chief executive, Sathvik Vishwanathan. “They (IRS officials) have asked me to submit a paper describing how bitcoin works, how transaction works, how to mine bitcoins and what happens technically in bitcoin mining,” Vishwanathan said.