Advisory expected from RBI on Bitcoin

With Chinese central bank making official remarks on Bitcoins advising Banks not to acquire BTC as a currency/asset, and the approaching Global Bitcoin Conference in Bangalore on December 14th  and 15th, heat is now on RBI to give its own advisory.

It is expected that RBI cannot remain “Watching” the situation for long without reacting to the emerging situation. The main concern of RBI at this point of time is not how much of the Indian economy would be affected by the new phenomenon but a desire to ensure that the citizens of India donot lose money in speculation surrounding bitcoin. In the past RBI has been issuing advisories to public on any scheme where public may be cheated of their savings. This may guide RBI even now.

RBI now has two distinct choice.

1. It can provide an advisory meant to educate the public on the volatility of the exchange value of BTC and the possible  losses that investors may sustain if the regulators in India or elsewhere eventually take action to ban BTC through law.

2. It can also take the tougher stand and declare that BTC is not legal in India and any body using BTC is liable for legal action from RBI.

It is more likely that RBI may take the first option and release a general advisory. In the advisory RBI may warn the public about the possibility of  foreign exchange violations as well as the possibility of being part of a money laundering chain when investors buy and sell BTCs.

While we await an official guidance from RBI in this regard, The views of Naavi.org in connection with BTC may be summarised as follows.

1. BTC is in law an electronic document. It is recognized as a “Document” as per ITA 2008. It can be transferred legally as a contractual sale or purchase preferably through digitally signed electronic contracts or otherwise through a physical contract document or through an implied contract. 

2. BTC however is not equivalent to “Currency” carrying a “Promise to pay” from any authority. BTC can however be accepted in exchange of goods and services subject to mutual acceptance of the parties.

3. BTC is however a “Virtual Asset” on which there may be a value perception placed by investors. It may appear placing a value on an asset which is not only intangible but also nearly illusory is strange. However just as the “Spectrum” in telecom industry has a value because “Spectrum” is in limited supply and has a use, BTC has a value since it is in limited supply and use. Investors may therefore consider it as an asset. The wild fluctuations in the asset value is however a reality since it is yet to mature as an asset. However the current price level of around $832 despite the recent negative cues from China indicates that the undercurrent is still strong.

4. BTC mining is an industrial activity and is considered legal. It is not possible for RBI to ban BTC mining even if it issues an advisory on BTC not being a recognized currency. BTC mining in international pools is like  a software service and is also outside the gamut of RBI policy on currency. Individual however may recognize that BTC mining is today not economical at individual level and hence it is not an activity that an ordinary Netizen should consider.

5. Indian residents considering investing in BTC as a speculative virtual asset should steer clear of buying BTCs from exchanges outside India paying in foreign exchange . Buying BTCs in India from miners in India who have mined it themselves is acceptable if the value fluctuation risk can be absorbed by the investors. Appropriate KYC on the seller is however essential. Selling BTCs to a Non Resident if they have been mined by themselves or acquired from other local miners is acceptable. Proceeds of such sales should be realized in foreign exchange and brought to India through banking channels.  Selling by Indian residents,  BTCs mined by self or acquired through local purchase to other Indian residents in rupees is acceptable. Profits in such transactions are subject to appropriate taxation in India.

This advice from Naavi.org is subject to revision based on changes that may occur in the regulatory space in India. There is no regulatory support for this advisory. This is provided on good faith basis and no liability lies on Naavi.org for consequences arising out of accepting and following these advises.

Naavi

9th December 2013

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About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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