India's finance ministry cautioned investors on Friday about the risks digital currencies such as bitcoin, likening them to "Ponzi schemes".
The Central Government on Friday warned the investors before venturing into crypto currencies. "The price of Bitcoin and other virtual currencies, therefore, is entirely a matter of speculation resulting in spurt and volatility in prices", the ministry said.
"Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes", the Finance Ministry said in a statement.
The advisory said, "The Government also makes it clear that VCs are not legal tender and such VCs do not have any regulatory permission or protection in India". Globally, the finance ministries all over the world have labeled Bitcoin and other virtual currencies as bogus due to their no intrinsic value.
Ponzi schemes are fraudulent investment operations where the operator generates returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profit of financial trading. Indirectly, Govt.is saying that don't invest in such VCs, because its value can become zero any moment.
As transactions of virtual currencies are encrypted, the ministry said they were also likely being used to carry out subversive activities such as terror financing, smuggling, drug trafficking and money-laundering.
"VCs are neither currencies nor coins".
Bitcoin values in NY, for instance, have soared almost 1,600 per cent over the past year and now range upwards of $15,000.
Regulators in countries such as Russia, China and South Korea have taken notice, issuing crackdowns.
Meanwhile, cryptocurrency dealer Pluto Exchange on Thursday announced the launch of India's first mobile application for transacting in virtual currencies.
Since virtual currencies are not backed by government fiat, the ministry stated that virtual currencies are "not legal tender" emphasizing that the "Reserve Bank of India has not authorized any VCs as a medium of exchange" nor given authorization to any agency for their use or endorsement. New measures will require real-name cryptocurrency transactions and the government also plans to ban cryptocurrency exchanges.
However, unlike neighbouring countries Bangladesh and Nepal where bitcoin is illegal, India stopped short of issuing an outright ban on digital currencies.