Bitcoin part of 67 virtual currencies, with a combined value of $13 billion

As regulatory glare intensifies on Bitcoins due to possible money laundering, cyber-security and other risks, over five dozen other virtual currencies have come under the scanner, including a desi version named 'laxmicoin'.

The total value of these 67 digital currencies in circulation over Internet has reached nearly $13 billion (over Rs. 80,000 crores), out of which Bitcoin alone accounts for over $9 billion, according to market estimates.

A virtual currency is a form of unregulated digital money, not issued or guaranteed by a central bank, which can act as a means of payment. It is now increasingly possible to use virtual currencies as a means to pay for goods and services with retailers, restaurants and entertainment venues.

Virtual currencies can be bought at an exchange platform using conventional currency. They are then transferred to a personalised account known as a 'digital wallet'. Using this wallet, consumers can send virtual currencies online to anyone else willing to accept them, or convert them back into a conventional fiat currency.

The total value of Bitcoin and other such virtual currency trades in India is estimated to be worth only a few crores as of now, although NRIs living abroad are expected to be dealing with Bitcoins in a big way.

According to those dealing in Bitcoins and other such currencies, RBI's caution notice and action initiated by enforcement agencies in the country has been a major dampener and could come in way of the launch of Indian versions of such currencies and that of exchanges providing trading platforms.

A number of Bitcoin operators in India have begun suspending their business following RBI's warning against use of such virtual currencies due to potential money laundering and cyber-security risks.

Bitcoin is a virtual currency that can be generated through complex computer software systems with solutions shared on a network, although the process is complex and such 'mining' can be done only on very powerful servers.

Within four years of coming into existence, Bitcoin has become the world's most expensive currency and its per unit value soared past $1,200 level or about Rs. 63,000 recently, although the prices have now slipped below the Rs. 50,000 level.

There was a phenomenal surge in the exchange rate for Bitcoin from little over $200 to well past $1,000 during November, but there has been extreme volatility since then and the RBI's warning has further added to its woes to the use of the virtual currency in India.

According to experts and regulatory officials, different virtual currencies continue to pop up almost every day, exposing users to unintended risks and also losses arising out of scams perpetrated by cyber-criminals looking to make a quick buck.

While four-year old Bitcoin shot to prominence with its per unit value peak recently, the heavy interest in such cryptocurrencies has led to the emergence of counterparts like Ripple, Litecoin, Mastercoin, Nxt, Dogecoin etc. The aforementioned laxmicoin, which is termed by its promoters as India's very own digital currency, is claimed to be due to launch soon.

The proliferation of new currencies is being linked to the complexities involved in the way Bitcoin is 'mined'. The newer avatars are comparatively much easier to create, word-of-mouth publicity and a rush of speculators has ensured they are catching up much faster, traders said.

While the absence of information of counterparties while trading could subject users to breaches of Anti-Money laundering laws, the opening of an account also potentially exposes them to the risk of identity theft.

Most virtual currency platforms require users to upload images of government photo IDs (passport, driver's licence etc), proof of address documents (utility bill, vehicle registration etc) as well as online banking account details.

While the US has declared that all prevailing money laundering laws would apply to Bitcoins, China has asked its banks and other financial institutions not to deal in Bitcoins and the public has been asked to do so at their own risk.

Earlier this month, the European Banking Authority said thefts from digital wallets have exceeded $1 million in some cases and traders are not protected against losses.

On Christmas day, hackers digitally robbed 21 million Dogecoins, a currency that was reportedly created earlier this month to poke fun at Bitcoin.

While RBI has yet to come out with a clear regulatory framework for Bitcoins, within days of its advisory, entities such as buysellbitco.in, INRBTC and unocoin suspended operations (https://www.gadgets360.com/internet/news/bitcoin-operators-start-shutting-down-in-india-following-rbi-advisory-463476), temporarily or indefinitely, while websites of a few others have gone down.

A team of Enforcement Directorate (ED) officials last week raided two offices in Ahmedabad for illegally trading of Bitcoins through their websites.

"With the shutdown of these India-based exchanges, consumers will now seek other exchanges in order to purchase Bitcoin, driving business elsewhere. To be fair, RBI's actions are expected. Bitcoin is a new technology and its nature is very risky because it is still in its infancy," said Jinyoung Lee Englund, Director of Public Affairs, Bitcoin Foundation.

Soon after global monetary authorities issued warnings or advisories, values of virtual currencies slumped and have become very volatile with daily swings of 5-20 percent. Bitcoin was recently trading at $740, down 25 percent from its peak.

"The message of central banks is one of caution, reminding consumers that Bitcoin is not government sanctioned or insured and that any involvement would incur personal financial risk. Infrastructure needs to be built and the foundation is hard at work educating regulators, lawmakers, and the public...," Lee Englund said.