At a time when the dividing line between virtual and real is vanishing faster than what it takes us to realise, the Reserve Bank of India’s guarded warning on dealing with virtual currencies is hardly surprising. In fact, the caution issued on Tuesday was the second of its nature after it reacted to the global phenomenon for the first time in August when the apex bank was reported to be “watching and learning” about bitcoins. Though the craze had started in 2009 and spread slowly to various financial transactions, nobody is quite sure how the virtual currency is traded and exchanged and a value is fixed. Until recently, bitcoin had been considered as a fancy idea put forth by young techies to popularise invisible money in cyberspace. But, as it started firing the popular imagination and illegal financial transactions involving drug dealers and arms merchants came to light, the virtual currency has begun hogging the limelight. The concept, first emerged in a 2008 technical paper published under a Japanese pseudonym Satoshi Nakamoto, and bitcoin’s success in terms of its popularity and value appreciation are unprecedented. The surge in the use of bitcoins as a financial instrument in lieu of real currency is both unnerving and exciting despite the risks involved in dealing with digital money.
For the uninitiated, bitcoin is an electronic currency, minted in the virtual world and stored in, well, in digital wallets (that store the passwords to transact business of any nature on the Net). Bitcoin, as of now, doesn’t have any regulatory mechanism, or authorised by any government or its central bank which means that any operation of such nature does not come under the purview of laws governing national and international banking and finance. Since the operations, run on open software and mutual trust of stakeholders, are conducted in secrecy, they defy written and unwritten laws. It is estimated that India has 50,000-strong bitcoin community of which 30,000 are said to own the digital currency. And, like elsewhere in the world, the bitcoin is gaining currency among the young entrepreneurs and digital technology buffs. That is not surprising, considering the fact that India’s new generation has already been wedded to digital lives and they will jump on to any new innovation. But what concerns the establishment and bankers – as well as security agencies – is the number of frauds that could be easily perpetuated by cyber thieves. In a matter of seconds, millions could be siphoned off from virtual deposits leaving no trace.
In fact, there are many grey areas and loopholes which will be exposed only when frauds are detected like in the case of Silk Road when the American FBI arrested an entrepreneur Ross Ulbricht, the alleged mastermind behind an online marketplace for illegal drugs and arms which accepted only bitcoin payments. Similar cases have also surfaced in China, which is said to be embracing the virtual money enthusiastically, Germany and France. The reason for Chinese interest is it hopes one day the world will replace dollar with digital money, thus ending the domination of greenback. Though it is a wishful thinking at the moment, the possibility of virtual money taking over the major currencies can’t be ruled out. Before that happens, it is necessary to guard ourselves against virtual money deceptions, swindlers and crooks. In the absence of physical evidence, it will be a tough task to lay hands on cyber criminals. Needless to say, we need e-age laws!