India Raises Concerns On Bitcoin’s Credibility, But Doesn’t Call It Illegal Yet

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Bitcoin traders are having a roller coaster ride everywhere, and India is no exception. After initial momentum that saw several Bitcoin exchanges emerge in India, the Reserve Bank of India issued a warning that sent many traders into a tizzy last year.

Now, Raghuram Rajan, the RBI’s new governor, has reiterated the central bank’s concerns about the credibility of Bitcoin. Addressing a technology conference in Mumbai earlier today, Rajan said there are ambiguities about who controls the value of Bitcoin.

“As a currency, I do worry a little bit when the underlying (value) fluctuates tremendously. One of the values of a currency is stability and the extent (to which) a currency is target of speculation as opposed to primarily a means of exchange,” he said, addressing a conference organized by technology industry body Nasscom.

I do think we have to understand the role of virtual currencies and how they will interact with the paper currency that you have…There are questions that need to be asked, one of them being, who will maintain value? Can we have confidence in unseen, unknown centres who maintain the value of the currency, or an algorithm that will maintain the value of the currency – we need more credibility there

But Bitcoin traders in India are not giving up yet. Last month, Highkart became the first (and the only) e-commerce site in India to start accepting payment in Bitcoin. Its co-founder Amit Kumar told me that one of the challenges facing growth of Bitcoin in India is that many early adopters are still hoarding the currency and not trading them. Highkart sold a pair of shoes from Provogue in exchange for Bitcoin as its first transaction. It has currently 150 products, and the startup does not charge anything extra for shipping the products.

“There’s nothing illegal in accepting Bitcoin — the RBI will take more time to come up with clarity,” Kumar added. Highkart and other Bitcoin traders in India say they are following all banking regulations prescribed by the RBI, leaving no room for any illegal activities.

Benson Samuel, a Bitcoin developer and consultant, said nothing much has changed for Bitcoin in India since the last time RBI issued the warning. Last month, an Indian lawyer even sent a legal notice to RBI asking for clarity on Bitcoin trading in India. 

A major concern for policymakers and regulators about Bitcoin is that it could be used for money laundering and other illegal activities. The Bitcoin traders, however, say that such concerns apply to any currency.

For its part, the RBI is not ruling out a future for Bitcoin in India yet.

“I don’t want to say that there is no future for these virtual currencies. I think it’s a process of evolution, but for now all we’ve done is express the kinds of concerns we have about it, without determining in any which way what we intend to do,” Rajan said earlier today.

Even as countries such as India and Russia think of Bitcoin as “potentially suspicious”, the virtual currency is mainstream now. Bitcoin was named the best Technology Achievement of 2013 at the Crunchies yesterday.