Bitcoin: Indian govt warns users; calls bitcoin a Ponzi scheme

The finance ministry has warned the investors to be wary of bitcoin and other virtual cryptocurrencies. The government also said that the cryptocurrency is like a Ponzi scheme with no legal protection.

In an official statement, the Finance Ministry said, “There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money. Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes.”

There is a significant increase in the Indian investors buying bitcoins. The cryptocurrencies are stored in digital ledgers on a blockchain network. The government believes that storing the virtual currency in digital format makes it vulnerable to hacking. Loss of password, a malware attack can lead to permanently losing the investment.

Pon Radhakrishnan, the Minister of State for Finance had demanded the thorough examination of legal structures governing bitcoin in Lok Sabha. Based on the suggestion, the Department of Economic Affairs had constituted an inter-disciplinary committee to examine the global regulatory and legal structures for Bitcoin. The committee has reportedly submitted the report, which is under considering with the government.

The Reserve Bank of India has already cautioned the investors, users, and traders of cryptocurrencies. The potential of financial, operational, customer protection, legal and security risks have been highlighted by the RBI several times. The central authority of banks has also clarified that it has not given any license or authorization to bitcoin or any other virtual cryptocurrency.

The government or RBI has not sanctioned any authority to use any virtual currency as a medium of exchange. The statement further added, “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 risk and should best avoid participating therein. VCs are not backed by government fiat. These are also not legal tender. Hence, VCs are not currencies. These are also being described as ‘Coins.”

While there is no rule or law by the Indian government that bans the trading of bitcoin, the finance ministry has warned the Indian customers. The government said that the price of any virtual currency is a matter of mere speculation resulting in spurt and volatility in the prices.

– Rajat Kabade

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