Published: Fri, December 29, 2017
Technology | By Christopher Mann

Indian Government Compares Cryptocurrencies to Ponzi Schemes

Indian Government Compares Cryptocurrencies to Ponzi Schemes

"Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes", the Finance Ministry said in a statement.

In the recent weeks, despite all the uncertainties and lack of transparency around Bitcoin, its value has gone significantly.

In a new statement issued December 29, India's Ministry of Finance warned residents against the risks associated with trading cryptocurrencies, going so far as to compare blockchain-based assets like bitcoin to "Ponzi schemes".

The Indian government says there are several problems with Bitcoins, but primarily the issue is that it is fluff.

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In a media release, the ministry said, "The government or any other regulator in India has not given license to any agency for working as exchange or any other kind of intermediary for any virtual currency".

Bitcoin, a virtual currency, is not regulated in the country and its circulation has been a cause for concern among central bankers the world over for quite a while now.

"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", the ministry said. "There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes which can result in sudden and prolonged crash exposing investors, especially retail consumers losing their hard-earned money", the statement read. Virtual Currencies don't have intrinsic value and aren't backed by any assets.

Meanwhile, cryptocurrency dealer Pluto Exchange on Thursday announced the launch of India's first mobile application for transacting in virtual currencies. Hence, (they) are not currencies.

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India now has no regulation for cryptocurrencies, and like other global policymakers, it is seeking to understand how to supervise a market that many feel is a speculative bubble. The Reserve Bank of India (RBI) has also cautioned users, holders, and traders of virtual currencies. The schemes work in a way where the initial investors are given exemplary returns by the amount of money that is generated from the ongoing stream of newer investors who are falling into the pitfall of financial malpractice. Such an incident, can result in permanent loss of money.

The ministry also cautioned that encrypted transactions in cryptocurrency were likely being used for illegal activities such as "terror-funding, smuggling, drug trafficking and other money laundering acts".

The finance ministry further said, "VCs are not backed by government fiat".

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