Reserve Bank of India (RBI) Deputy Governor R Gandhi on Wednesday cautioned against virtual currencies such as Bitcoin, stating that they pose potential financial, legal, customer protection and security-related risks. “Blockchain, the foundation for Bitcoins like innovations, is touted to be the death knell of currency. I believe its potential is being overstated. We can see that in these types of solutions for virtual currency, there is no central bank or monetary authority. They pose potential financial, operational, legal, customer protection and security related risks,” Gandhi said at the ‘FinTech Conference 2017’ organised by FICCI, IBA and Nasscom.
Gandhi said virtual currencies being in digital form are stored in digital/ electronic media and they are prone to losses arising out of hacking, loss of password, compromise of access credentials and malware attack. “Payments by such currencies are on a peer-to-peer basis. No established framework for recourse to customer problems, disputes/ charge backs, etc. is feasible,” he said. “Value seems to be a matter of speculation. Legal status is definitely not there. While this is a purported objective of a VC, it puts a natural limit for its progression. And finally, the usage of VCs for illicit and illegal activities has been reported as uncomfortably large,” Gandhi said.
“My arguments against virtual currencies stem from two elements — the concept of confidence and anonymity. The currency should be able to sustain these two elements forever. It will impair its exalted status once either of these two elements gets affected.” He said the confidence in Bitcoin, or any other virtual currency based on blockchain, is also limited to its initial rounds and circles. “The initial round is always filled with adventurists and risk seekers. The moment masses gets in, the risk avoiders get in and they will need greater confidence for its acceptance and continuance,” Gandhi said.
The confidence in virtual currencies can only come if an authority endorses them, he said. “It may remain a pipe dream that blockchain will eliminate currency by ushering in virtual currency. It is unlikely.” Gandhi maintained banking is no longer what a bank does but is also what a non-bank entity does. “Banks are no longer those entities which do banking exclusively, non-banks also do banking.” “You now have a digital currency; not created by authorities; more and more people have accepted it. Bitcoins have acquired value; they are being used for settling varieties of economic transactions; people are using them as investments and store of value. So ‘currency’ is being eliminated,” he said.