In the wake of a significant spurt in the valuation of many virtual currencies and the rapid growth in the Initial Coin Offerings (ICOs), the Reserve Bank of India has reiterated its concerns regarding the potential economic, financial, operational, legal and security-related risks associated with crypto-currencies.

The RBI has been cautioning the public about the risks involved in dealing with crypto-currencies, including bitcoins, litecoins, bbqcoins and dogecoins . The central bank also underscored that it has not given any licence/authorisation to any entity/company to operate such schemes or deal in crypto-currencieswith VCs.

Crypto-currencies, being in digital form, are stored in digital/electronic media called electronic wallets. Therefore, the RBI said that they are prone to losses arising out of hacking, loss of password and malware attacks. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the crypto-currency held in them.

“Payments by virtual currencies, such as bitcoins, take place on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer problems/disputes/charge backs, etc.,” the RBI said.

Potential threats

The central bank observed that there is no underlying or backing of any asset for crypto-currencies. “As such, their value seems to be a matter of speculation. Huge volatility in the value of virtual currencies has been noticed in the recent past. Thus, users are exposed to potential losses on account of such volatility in value,” it said.

Referring to reports that crypto-currencies are being traded on exchange platforms set up in various jurisdictions, whose legal status is also unclear, the central bank said that traders are exposed to legal as well as financial risks.

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