At present, there are no regulations governing virtual currencies like bitcoins in India. RBI, on December 24, 2013, issued a press release on virtual currencies like bitcoins, litecoins, bbqcoins, dogecoins stating that creation, trade and usage of virtual currencies as a medium for payment is not authorized by any central bank or monetary authority. Further, RBI has cautioned virtual currency traders and users to various security related risks such as hacking, malware attack etc. While RBI has not legalized bitcoins, it has declared them unauthorized as of now. RBI is currently examining the risks associated with the usage, holding and trading of virtual currencies under the extant legal and regulatory framework of India, including foreign exchange and payment systems laws and regulations.
According to RBI, virtual currencies being in digital form are stored in digital/electronic media that are called electronic wallets (e-wallets). Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorized central registry or agency, the loss of an e-wallet could result in the permanent loss of the virtual currencies held in them. Payments made through virtual currencies, such as bitcoins, takes place on a peer-to-peer basis without an authorized central agency regulating it. As such, there is no established framework for recourse to customer's problems/disputes/charge backs, etc. Further, there is no underlying or backing of any asset.
Submitted by Aditya B.