Government sounds alarm on Bitcoins

New Delhi, Dec 29 (IANS) Noting that virtual currencies like Bitcoin have no "intrinsic value", the Indian government on Friday sounded the alarm on the phenomenon of cryptocurrencies, comparing them with the notorious Ponzi schemes floated to dupe gullible investors.

A Finance Ministry statement said that as virtual currencies (VCs) were not backed by assets, their prices are entirely a "matter of mere speculation".

"Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes."

Named after an Italian immigrant to the US, Ponzi schemes operate by enticing a gullible group with the promise of very high returns in a short time, but is based on paying off the early investors from the cash from newer ones. The whole structure collapses when the cash outflow exceeds the inflow.

"VCs don't have any intrinsic value and are not backed by any kind of assets, " the statement said.

"The price of bitcoin and other VCs, 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," it added.

Noting that VCs are stored in digital format, the ministry said this makes them vulnerable to mishaps like hacking, loss of password and malware attack "which may also result in permanent loss of money".

"As transactions of VCs are encrypted they are also likely being used to carry out illegal/subversive activities, such as, terror funding, smuggling, drug trafficking and other moneylaundering acts," it said.

It clarified that VCs are not legal tender and do not have any regulatory permission or protection in India.

"VCs are neither currencies nor coins. The Government or Reserve Bank of India (RBI) 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 VC," the statement said.

The government also recalled that the Reserve Bank of India had cautioned potential investors about the risks in investing in cryptocurrencies like bitcoins on three earlier occasions -- in December 2013, February 2017 and December 2017.

According to investigation agencies here, with the demand and price of cryptocurrencies on the rise, cyber criminals have found innovative ways to dupe those looking to invest.

Bitcoins in India, have been trading at more than Rs 10 lakh each, while people are investing amounts ranging from Rs 3,000 to several lakhs of rupees.

Bitcoin values in New York, for instance, have soared nearly 1,600 per cent over the past year and currently range upwards of $15,000.

Meanwhile, cryptocurrency dealer Pluto Exchange on Thursday announced the launch of India's first mobile application for transacting in virtual currencies.

At a press conference here, Pluto Exchange founder and Chief Executive Bharat Verma said his company is all set to launch the country's first app-based wallet that enables Bitcoin transactions using a mobile number.

"All other apps already in the market do transactions using bitcoin addresses, which are long and prone to error while copying. Pluto Exchange will change this scenario by enabling transactions using mobile numbers only, which are just 10 digits," Verma said.

He also said the app would permit a range of transactions, including payments, remittances, business-to-business commerce, supply chain finance, asset management and trading.