India Backs Down on Bitcoin. Or not?
The Indian Government is chaotic. Bitcoin exchanges have been violently raided, their owners arrested and interrogated. Now their central bank says Bitcoin is, “Not a legal problem”. What is going on?
India and Bitcoin have been in the news recently. First, some exchanges there were raided, shut down and the owners arrested.
Now we read that the RBI says Bitcoin is OK, more or less. With some very irrational caveats and warnings about imaginary dangers of Bitcoin. I have copied their entire statement below for parsing.
Is India run by a central government or not? It seems that depending on where you are, you can either find yourself in gaol for running a Bitcoin exchange, or you will be left entirely alone to operate at your own risk.
For any honest, non violent entrepreneur, regulation of Bitcoin is something to be advocated against. That being said, its completely unworkable to start a business in a climate where the law is made up on a whim by a few people in an office who are computer illiterates and who know nothing about Bitcoin whatsoever, other than what they read from foreign computer illiterate journalists and febrile geriatric “economists” in the New York Times.
Here is the full advisory issued by RBI:
The Reserve Bank of India has today cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.
There are no risks involved in running a Bitcoin client. The Bitcoin network has never been compromised. All the risk in using Bitcoin comes from human error or the operating systems that the Bitcoin wallet is running on. The RBI should be making this recommendation about running Microsoft Windows, not Bitcoin. They should be railing against the tainting of BIOS chips and other consumer computer devices and software by the American NSA, not Bitcoin. If you do not know what any of that means, it doesn't matter. All you need to know is that
the RBI does not know what it is talking about when it comes to computer security.
The Reserve Bank has mentioned that it has been looking at the developments relating to certain electronic records claimed to be “Decentralised Digital Currency” or “Virtual Currency” (VCs), such as, Bitcoins, litecoins, bbqcoins, dogecoins etc., their usage or trading in the country and the various media reports in this regard.
This means they have been reading articles on the internet. They have done no research of their own, and are very probably incapable of doing so. The fact that they list litecoin, bbqcoin and dogecoin in this section proves that they do not know what they are talking about.
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. As such, they may pose several risks to their users, including the following:
This is standard Statism when it comes to money. The stock line is money is not money unless it comes from a central bank or monetary authority that is not regulated or approved or registered or authorised. Of course, this means that Bitcoin is the best money other than gold, but
to the RBI, Bitcoin is as garlic to a Vampire.
Now we come to the naked computer illiteracy, where they demonstrate that they do not know what they are talking about.
VCs being in digital form are stored in digital/electronic media that are called electronic 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 authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them.
Virtual currencies are not “prone to losses” this is simply a lie. Loss of password is only relevant if your wallet is encrypted with a password, and if it is, it is no different to losing your password on any system where recovery of it is impossible, like MacOSX’s File Vault. This password risk is not unique to Bitcoin at all, and is decades old. “Compromise of access details” doesn't even make any sense, since the client provides the credentials by nature of its operation.
The paragraph then says that since Bitcoin is not authorised by a central registry, loss of the wallet results in permanent loss of the Bitcoin. I would like to see a description of how a Bitcoin wallet’s contents could be recovered if the user was registered with the RBI. This is pure nonsense on stilts.
Payments by VCs, such as Bitcoins, take place on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer problems / disputes / charge backs etc.
Customer problems with retailers are a separate issue to the peer to peer network that moves the Bitcoin between wallets. The RBI has conflated two separate issues here.
The fact that chargebacks are not possible in Bitcoin is a feature, not a bug, and through this feature, people in India will be able to make payments anywhere in the world without the fear of rejection that they have now.
Credit card purchases online emanating from third world countries are routinely rejected simply because the card holder lives in India or some other third world place, where it is assumed that the vast majority of card purchases from these territories are fraudulent. At last, when Bitcoin becomes the de-facto way of buying online, the stain of being an Indian on the internet and buying from a shop half way across the world will be gone forever. This is because Bitcoin payments are secure, verified and irreversible.
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.
This is simply hilarious. The central bank managed fiat currencies of India and all other countries steal value from populations because they are not backed by any asset, like gold. How is it that this is a problem for Bitcoin, but not for the Dollar or the Pound Sterling? Bitcoin is exposing the fraud of the central banks so profoundly that they cannot argue against it without exposing themselves and their fraudulent money. You couldn't make it up if you tried.
The volatility of Bitcoin is a temporary effect, exacerbated by the incompetent and half witted apparatchiks in governments who keep making these absurd and ignorant pronouncements. It is they who are causing Bitcoin’s price in fiat currencies to be unstable, not Bitcoin’s nature itself.
It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.
“It is reported” where did they read these reports? Surely an honest party would cite the research they used to put this together?
The legal risks all come from the RBI and the State. If these people shut up and stayed away from Bitcoin, there would be no legal risk. This is a problem that they themselves are creating that would not exist otherwise.
There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
You see? They are basing all of their conclusions on media reports, and not on their own thinking and research. If the media reports had said that Bitcoin is recognised, safe and entirely beneficial, they would have simply believed the reports and embraced it. This is why I have consistently advocated that the idea of registration and legalization should not be sought after by anyone who has an interest in Bitcoin growing exponentially.
The Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.
It is clear that the RBI does not have the capacity or competence to examine Bitcoin, and that their intent is not to help the people of India, but rather to do as much harm to them as possible.
They are computer illiterates and followers of the policies of other countries, not leaders and innovators. This is most tragic. Consider the large number of software developers in India who could transform that country using Bitcoin, and then consider that they will not be able to do so thanks to “their government”.
Also, these developers will not be able to write Bitcoin software for money at the request of foreign entrepreneurs. This is the logical conclusion of regulation of Bitcoin; the prohibition of developing software that uses Blockchain technology.
That is one of the related links. The beleaguered Americans have just been told by FinCEN that Bitcoin miners will not fall under their destructive hammer. If miners in India are taxed, no one in India will bother mining Bitcoin, and it will be done elsewhere. As Bitcoin grows, all Indian Bitcoin transactions will be processed outside of their country, where the miners will profit from the Bitcoin transactions made by Indians.
I guarantee you that in the future, someone in the Indian government will whine about “Bitcoin colonisation” because all their citizens transactions are confirmed outside of India, reducing the country to the state of vassals.
You cannot have it both ways.
These politicians and central bankers need to simply go away and allow the Indian entrepreneurs to establish world class Bitcoin business models that will propel India into the 21st century.
The alternative is to remain a third world country where everything, down to the money they use online, is handed to them as children are handed sweets and patted on the head.
