The threat of Bitcoins…Attention RBI

An article in Forbes raises an interesting aspect on how China may be preparing for a new Cyber War front based on controlling the virtual currency.

See the article here

Readers of Naavi.org are familiar with the discussions on “Linden” the virtual currency used on secondlife.com and how there was a dispute about conversion of the Lindens into US dollars by a person alleged to have fraudulently sold virtual land in secondlife.com. This happnned several years ago but was an indication of how disputes may arise if Virtual world starts interfering with the physical world in the currency domain.

Now every cyber fraudster has to still collect physical currency through a Bank to enjoy the fruits of his fraud. But if Virtual currencies gain wide acceptance then fraudsters can easily encash their fraud proceeds through the virtual currency by passing the regulatory system of the physical world. This will have very serious adverse consequences on the society.

Now an indication of what is likely to happen has been indicated by the increasing popularity of “Bitcoin”, a peer to peer digital currency that functions without he inter mediation of a central authority. The system is a currency version of Bit Torrent.

Bitcoin is termed as a “Cryptocurrency” since it uses crryptography to control transactions and prevent duplication. The system works through operators known as “Miners” who process the generation of coins.  Every individual transaction is permanently recorded in a public ledger known as the block chain.

Users keep “Wallets” in which bitcoins are stored. Payment gateways assist in transfering payments from one bitcoin wallet to another.

The Bitcoin system originally introduced in 2008 as a concept paper became operational in 2009. In 2011 it is reported that Bitcoin exchange value rose from $0.30 to $32 before falling back to $2.

This year, China appears to be showing increased attention on the system and the China based Bitcoin exchange BTC China is said to have overtaken the Japan based Mt Gox and Europe based Bitstamp to become the largest Bitcoin trading exchage.on 19th November 2013, it is reported that one Bitcoin was traded at US $1100. The total Bitcoin holding is said to be roughly 12 million. The marketcap of Bitcoin is therefore expected to be more than US $7.2billion.

The future threat of Bitcoins is that it is likely to be used in replacement of the Swiss Banks  for black money holding, money laundering and financing of criminal activities.

From the Forbes article it appears that China is promoting the currency with the intention of posing a challenge to US dollars as a globally accepted currency as well as  to overcome international sanctions.

The emerging threats of Bitcoins appear to be many and unless we in India start thinking on how we address the threat, the country may face a new threat from the terrorists who may start using this currency for financing anti India activities.

We therefore request RBI and SEBI to start thinking on how to tackle this threat of peer to peer virtual currency.

Naavi

Related Article in The Hindu

All about Bitcon

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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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