Even as Bitcoin touches new highs fuelling investor interest, the Reserve Bank today warned the public of the risks of virtual currencies (VCs).
Citing its earlier warnings on the subject, the central bank said, "in the wake of significant spurt in the valuation of many VCs and rapid growth in Initial Coin Offerings (ICOs), RBI reiterates the concerns".
It can be noted that the price of a single Bitcoin, which is not regulated by any monetary authority, had skyrocketed to up to USD 11,000 last week in a rally which puzzled watchers.
"There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value," the central bank had said in a December 24, 2013 note.
Bitcoins or other VCs do not yet have a wide acceptance as tender for settling trade transactions. They are 'minted' using algorithms which are based on blockchain technologies, according to experts.
Those backing the instrument say no one has been able to crack the code which mints the 'currency' and stress the fact that such instruments are the future of finance in an inter-connected world.
The Reserve Bank has been repeatedly saying since late 2013 that they possess "potential financial, operational, legal, customer protection and security related risks".
The apex bank had said that it was studying the sector but emphatically clarified that it is uncomfortable with "non-fiat" cryptocurrencies.
"As regards non-fiat cryptocurrencies, I think we are not comfortable," its executive director Sudarshan Sen said an industry summit in September this year.
"The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities," it had said in its first comments in September 2013.
Such currencies, stored in electronic wallets, are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack, it had said.
The RBI had also said that the exchange platforms on which the Bitcoins are traded are set up in various jurisdictions whose legal status is also unclear.
In September this year, media reports had said the finance ministry is mulling over launching a cryptocurrency called "Lakshmi" and has set up a committee for the same.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)