My reply to an RBI notice: RBI cautions users of Virtual Currencies against risks
Bitcoin has today cautioned the users, holders and traders of Fiat Currencies (FCs), including the Indian Rupee, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.
The Bitcoin has mentioned that it has been looking at the developments relating to certain pieces of paper with pictures of dead people, and electronic records denoting the same, claimed to be “Legal Tender” or “Fiat Currency (FCs), such as, the Dollar, Pound, Euro, Rupee etc., their usage or trading and the various media reports in this regard.
The creation, trading or usage of FCs including rupees, as a medium for payment are not authorised by any economic laws or backed by historical experience as being sound money. However, they receive recognition from territorial monopolies on the use of force nation-states in the form of regulatory approvals, registration or authorisation for carrying on such activities. As such, they may pose several risks to their users, including the following:
- FCs in digital form are stored in digital/electronic media that are called bank accounts. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Also, since they are constantly being created by an authorised central bank and its member banks, they are prone to loss of purchasing power and could potentially face a permanent loss of value, becoming substitutes for firewood or toilet paper
- Payments by FCs, such as dollars, do not take place on a peer-to-peer basis operating on a web of trust to regulate such payments. As such, there is no established framework for recourse in case third parties suddenly decide to confiscate funds by imposing new rules on the intermediaries
- There is no underlying or backing of any asset for FCs. Taken at face value, they are either bits on a computer screen, or pieces of cotton with some ugly pictures on them. As such, their value seems to be a matter of speculation. Huge volatility in the value of FCs has been noticed in the historic records – and they all seem to have reached a zero value at some point without fail. Thus, the users are exposed to potential losses on account of such volatility in value if they are used as a store of wealth
- It is proudly proclaimed that FCs, such as dollars, are being traded on exchange platforms set up in various jurisdictions whose legal system allows for their confiscation from intermediaries (banks, other financial institutions) as well as from the owners’ homes without consent of the proper owner – with this being the right way to manage the use of FCs. Hence, the holders of FCs on such platforms are exposed to legal as well as financial risks from the government and banking cartel
- There have been several media reports of the usage of FCs, especially dollars, for illicit and illegal for free trade activities disapproved of by the established national criminal syndicate in several jurisdictions. The users have been subjected to kidnapping, torture and murder, and held in cages for prolonged durations for refusing to obey the mandates of the crime syndicate. Bitcoin therefore advises users against the use of FCs for such transactions and further notes that it is happy to be employed as a medium of exchange, with enabling global free trade unfettered by anachronistic parasites being its aim
Bitcoin has also stated that it is presently examining the issues associated with the usage, holding and trading of FCs under the extant legal and regulatory framework of the country myriad rules imposed against person and property, including Capital Controls, Bank Bail-Ins, Asset Seizures, Withdrawal Limits, Taxes, Duties and Tariffs as well as other laws and regulations.