A notification from India's Ministry of Finance, cautioning against investing in virtual currency has had netizens in a tizzy. Media houses quoted a notification from the ministry with a headline that read, "Government warns against bitcoin trading, equates virtual currencies with Ponzi schemes".
Closer reading, though, reveals that the circular from the ministry is not a confirmation of whether bitcoin continues to remain legalised or banned, but instead the circular absolves regulators and lawmakers from losses made by individuals in the virtual-currency trading system.
The ministry rather than adopting a policy has opted to maintain status-quo. The recent circular refers to RBI's (Reserve Bank of India) press release from the year 2017 stating that the RBI has not offered any license or authorisation to any entity or company to operate virtual currency or bitcoin related schemes in the country.
The circular ends on a confused note, with a statement, "the Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs (Virtual Currencies) under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations."
Another press release from the RBI during 2013 says, payments by VCs such as bitcoins are held on a peer-to-peer basis without any authorised central agency that regulates payments and an established framework for dealing with customer problems or disputes or charge backs etc. In the release, the RBI also deliberated upon factors such as unclear legal status, and usage of virtual currencies towards illegal and nefarious activities that negated its purpose as a valid currency.
THE STANDARD TEMPLATE REPLY
Sify.com accessed documents of Questions and Answers posed in the Rajya Sabha and Lok Sabha on bitcoins. In 2017, three questions pertaining to bitcoins were answered by the Finance Ministry during the Lok Sabha proceedings, while five were answered in the Rajya Sabha.
Questions such as recognising bitcoins for natural economic growth, trading, financial risk in virtual currencies, regulation, etc have been the keywords that appeared within questions. The Ministry of Finance's standard and templated response has been as follows:
"The creation, trading or usage of VCs including Bitcoins, as a medium of payment is not authorized by any central bank or monetary authority. No regulatory approval, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities. "
The soaring popularity of bitcoins in India has been immense. Zebpay, a bitcoin exchange shared that in September it achieved five lakh downloads of its app, and was adding close to 2500 customers a day.
Rising popularity also resulted in victims. Stories of how users have been duped or ripped off for bitcoins have been doing the rounds on social media sites.
The above is a snapshot of a complaint posted on a social portal. A (below) snapshot of Twitterati ruing on challenges with Unocoin, a bitcoin exchange.
A Ministry of Finance and Department of Economic Affairs' committee with members from the RBI and the State Bank was constituted to evaluate the pros and cons of bitcoins in India. Besides the committee formation, the ministry also drove a discussion on the portal mygov.in to invite suggestions for a framework for existing virtual currency exchanges in the country. The report is laced with nearly 3888 submissions, a bulk of them from individual users seeking an active policy that would enable trading.
In fact the Internet and Mobile Association of India, responded with a thought stating, "it is our view that the most effective way forward at the present maturity of the virtual currency market would be for the regulator to explicitly take a view on their legality, permitting their use for legally permissibly and verifiable transactions, without bringing them into the ambit of outright regulation at this point. In its place, the establishment of a Self Regulatory Organization (SRO) - similar to the Payments Council of India (PCI) in the case of payments industry - would allow for the regulator to ensure operational and risk management of market entrants, while providing grounds for innovation and learning as a formal view on regulation is taken further down the road."
Sadly, in spite of the bitcoin's rising popularity, the policy-makers have continued to remain mum on the issue. The confusion has lingered for over four years now, and persists with the latest finance ministry circular too.
WILL STATUS-QUO CONTINUE?
Sify.com sought opinions from bitcoin experts on the recent circular. Most of them replied that the status-quo may exist for some time. Vijay Mukhi, a software programmer, and an expert on the topic of Bitcoin, said, "the RBI can effectively do nothing. Nobody owns Bitcoins so there is no one computer that the RBI or the Indian state can ban. A bitcoin is a multi-hydra monster, chop off all heads and yet you cannot shut it down."
"This is why the US or Europe do no take a firm stand on banning Bitcoins. The status quo will continue and the RBI will keep asking people not to invest in Bitcoins," he explains.
Sadly, most of these warning signals from central banks have not sufficed in keeping investors off bitcoins. And for such individual investors, getting refunds has become trickier than their imagination.
Mukhi, who has authored a book titled, "The undocumented Internals of the bitcoin, ethereum and blockchains, From IPO to ICO", concedes that unlike equity shares, where there is transparency on ownership, with bitcoins, ownership can be dubious.
"Bitcoins must be regulated, but self-regulation (referring to the RBI and Finance Ministry circulars) is no regulation. Assume I buy Bitcoins paying by cheque and the Bitcoin exchange claims that the Bitcoins are theirs and not mine, I have no recourse.
"Unlike shares , whoever owns the private key or password is the owner of the Bitcoins. This is why (readers) think twice before buying Bitcoins from a bitcoin exchange. The police or RBI or SEBI today can do nothing as by law they have no jurisdiction."
When asked what could be the reason for the government to wait, Mukhi reasons, "at some point in time , Bitcoins will have legality hence why wait for the inevitable. Today Indians are buying Bitcoins with no safety. If the state bans Bitcoins, the same business will go underground which is harmful for the Indian economy."
IS IT A PONZI SCHEME?
The Finance Ministry's Friday circular refers to bitcoins as Ponzi. A Ponzi, synonym for a fraud, follows the "quick returns" mantra, and an operation that returns monies of older investors through revenue paid by new investors. There is no legit business activity, neither is there a logic behind the financial trading of such operations.
That the bitcoin raced off to $17000 within days from $12000 could technically make it sound like a bubble, but a Ponzi? The Saradha Chit Fund Scam, the Sahara India case sound and appear more like a Ponzi than bitcoins.
Readers should be aware of the case of SuperLotto, the gambling games, for which legal reforms were brought about, simply because it resulted in sizable revenues for the state. In November, there was a murmur that the Income Tax Department could be looking at ways and means of taxing revenues on bitcoin trading.
Mukhi says, "the price-rise of 30x in a year makes bitcoins look worse than a Ponzi scheme. Such crypto currencies must be legalised otherwise people will find all sorts of ways around it, lottery being one of them."