Govt warns against investing in bitcoins

The government on Friday warned people against investing in virtual currencies, including Bitcoins, saying there were like ponzi schemes.

"There has been a phenomenal increase in the recent times in the price of virtual currencies including Bitcoins in India and globally. The VCs do not have any intrinsic value and are not backed by any assets. The price of VCs is therefore entirely a matter of mere speculation resulting in a spurt and volatility in their prices," the finance ministry said.

It said there was 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 in such ponzi schemes," the ministry said in a statement.

It said VCs are stored in digital/electronic format, making them vulnerable to hacking, loss of password and malware attack which may also result in permanent loss of money.

As transactions of VCs are encrypted they are also likely being used to carry out illegal/subversive activities such as terror funding, smuggling, drug trafficking and other money-laundering acts, the ministry said.

"VCs are not backed by government fiat. They are also not legal tender. Hence VCs are not currencies. These are also being described as coins. There is, however, no physical attribute to these coins. Therefore VCs are neither currencies nor coins. The government and Reserve Bank of India has not authorised any VCs as a medium of exchange," the ministry said.

It cautioned that the government or the RBI has not given any licence to any agency for working as an exchange or any other kind of intermediary for any VC.

"Persons dealing in them must consider the facts and beware of the risk involved in dealing in VCs," the ministry said.