RBI cautions against use of bitcoins other virtual currencies
RBI has expressed concern over the rise in use of virtual currencies like bitcoin that are based on blockchain technology.
RBI deputy governor at a conference organized by FICCI, IT industry and Indian banks association stated that virtual currencies pose potential financial, legal, customer protection and security related risks.
It has also not given any entity, a license or authorization to operate virtual currency of any kind. Thus, any user holding, dealing or investing in virtual currency is doing it at his own risk.
It was even predicted that virtual currency will lead to death of currency, on the contrary the use of currency has increased in absolute terms. This phenomenon is not limited to the developing economies but is witnessed even in developed economies.
What is virtual currency and cryptocurrency:
A currency created through encryption techniques. These are of various kinds with bitcoin being the most popular. A user can buy bitcoin from a website or through an application. Bitcoins are based on blockchain technology.
Bitcoins are a form of decentralized cryptocurrency, a digital currency in which encryption techniques are used
- to regulate the generation of currency
- verify the transfer of funds
- are not regulated by the central bank (monetary authority)
Concerns associated with them:
- There exists difficulty in creating an established framework to resolve customer disputes and grievances
- Currency should be able to sustain two elements of confidence and anonymity which is lagging in case of virtual currency
- Stored in digital electronic form they are prone to losses that arise because of hacking, loss of passwords and malware attacks
- It is highly difficult to regulate their use in illicit and illegal activities • Confidence in these currencies is shown mostly by adventure seekers and risk takers, but it is yet to find acceptance among the masses
RBI’s stand on blockchain technology:
Institute for Development and Research in Banking Technology (IDRBT) which is an arm of RBI, released a white paper on application of blockchain technology to the banking and financial sector in India.
The white paper also proposed a roadmap for the adoption of blockchain technology in our country.