Bitcoins are Ponzi schemes, neither currencies nor coins: Government

Sounding alarm on the phenomenon of cryptocurrencies, the Indian government once again asked consumers to be alert before investing in virtual currency like Bitcoin and compared it with notorious Ponzi schemes.

"The Virtual Currencies (VC) don’t have any intrinsic value and are not backed by any kind of assets. The price of Bitcoin and other VCs, therefore, is entirely a matter of mere speculation resulting in spurt and volatility in their prices. 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 Finance Ministry said in a statement. "Consumers need to be alert and extremely cautious as to avoid getting trapped in such Ponzi schemes," it added.

The Ponzi schemes are associated with enticing a gullible group with the promise of very high returns in a short time but is based on paying off the early investors from the cash from newer ones.

"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 investors and other participants, therefore, deal with these VCs entirely at their risk and should best avoid participating therein,” it said.

Reserve Bank of India (RBI) had cautioned potential investors about the risks in investing in cryptocurrencies like bitcoins on three earlier occasions in December 2013, February 2017 and December 2017.

Of late, the demand and price of cryptocurrencies on the rise, cybercriminals have found innovative ways to dupe those looking to invest. In India, Bitcoins have been trading at more than Rs 10 lakh each. People spurred by sudden growth, are investing amounts ranging from Rs 3,000 to several lakhs of rupees.

On Thursday cryptocurrency dealer Pluto Exchange announced the launch of India's first mobile application for transacting in virtual currencies.

"All other apps already in the market do transactions using bitcoin addresses, which are long and prone to error while copying. Pluto Exchange will change this scenario by enabling transactions using mobile numbers only, which are just 10 digits," said Pluto Exchange founder and Chief Executive Bharat Verma.

The app would allow a range of transactions including payments, remittances, business-to-business commerce, supply chain finance, asset management and trading. Users could buy, sell, store and spend bitcoins via a mobile number using a four-digit PIN.