Finance Minister Arun Jaitley said there was no law on the use of bitcoin and similar crypto currencies in India, and users of such currencies may not get recourse to legal remedies for any damage.
However, Jaitely added that the government has set up a committee that is expected to come up with suggestions for a regulatory framework to address the new form of value exchange.
“At present, there are no regulations governing VCs including Bitcoin (BTC) in India,” the minister said today. “The Reserve Bank of India has not given any license or authorization to any entity or company to operate such schemes or deal with Bitcoin or any virtual currency.”
“The Reserve Bank of India has cautioned from time to time.. about the potential financial, operational, legal, customer protection and security related risks,” it added. After a recent warning, several India-focused online bitcoin exchanges shut down their operations.
Crypto currencies, unlike other forms of currencies such as e-wallets and gift coupons, do not require a central authority to keep track of who has how much.
Instead, they use a peer-to-peer technology known as blockchain to keep track of all transactions. Using the technology, the bitcoin network, for example, keeps multiple copies of all transactions that ever happened on the platform on multiple user devices at once.
As a result, it is practically impossible to manipulate or hack crypto-currencies by hacking into a central database or organization.
Crypto-currencies are currently used in India for money transfer as well as for payment of certain services, particularly to parties outside the country.
These transactions come with a new set of problems for the government as it bitcoins do not contain or track the identity of their owner at any point. Instead, anyone possessing the virtual wallet owns the bitcoins that are linked to that wallet in the distributed system.
It is almost like cash in that it is very difficult to trace who the real payee or payer is in a transaction. If the owner of the wallet decides not to come forward, it is next to impossible to figure out who owns a particular wallet.
This has led to a breakdown of sorts for the government’s ability to track money movements. With no way to track the movement of money, security agencies are also at a loss to trace illegal activities such as terror funding, human trafficking, tax evasion and bribery.
The government said concerns have been raised about the use of such currencies, and that a committee has been formed to study how other countries have addressed the problem and come up with suggestions for India.
“The objectives of committee, inter-alia, were to take stock of the present status of Virtual currencies both in India and globally; examine the existing global regulatory and legal structures governing Virtual Currencies; suggest the frame work for regulation of Virtual Currencies if considered including issues relating to consumer protection, taxation, money laundering among others; any other matter related to Virtual Currencies which may be relevant,” it said.
Jaitley did not clarify whether the committee has submitted its recommendations.