Bitcoin, a form of digital currency, which is looked with suspicion across the world, has found support from an unexpected quarter. The RBI, in its latest financial stability report, said that the blockchain technology underlining Bitcoin has the potential to bring about a major transformation in the financial markets.

The central bank observed that blockchain could come in handy for collateral identification such as land records and payment systems.

Bitcoin is an innovative payment system which gets created electronically using complex logarithms. It is not held in a physical form but in an electronic format. The movement of the currency is not monitored by any central bank.

The report said that the traditional currency systems work on the basis of trust, regulatory and controlling powers, which are vested with Central entities but the blockchain technology is based on shared, secured and public ledger system, which is not controlled by any central user but is maintained collectively by all the users and participants in the systems based on a generally agreed and strictly applied rules,

Thus, the blockchain technology facilitates transactions and collaborations among participants, who have no information about or confidence in each other, yet they do not have to resort to a neutral and trusted central counterparty, the report said.

It pointed out that the notion of shared and technologically secure public ledgers raises the prospects of revolutionising financial systems. The full potential as also implications of its applications are still not known but at the same time, regulators and authorities need to keep pace with developments.

Many of the world’s largest banks are said to be supporting a joint venture effort for setting up of a private blockchain and building an industry-wide platform for standardising the use of technology, which has the potential to transform the functioning of the back offices of banks, increase the speed and cost efficiency in payments systems and trade finance.

Over the last few years, the RBI has been cautioning the users, holders and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection and security-related risks that they are exposing themselves to.

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