Bitcoin Bitcoin

This could be an interesting case for the Enforcement Directorate (ED), the Reserve Bank of India (RBI) and the Income Tax Department to solve this year.Some days back, soon after the RBI issued an advisory to public not buy and sell virtual currency Bitcoins, the ED conducted searches on two Ahmedabad-based entities.The ED found that both the Bitcoin operators had violated Foreign Exchange Management Act (FEMA) since the RBI does not permit such transactions.Around the same time in Bangalore, income tax officials visited the office of Coinmonk and Unocoin for a technical discussion on Bitcoin usage rather than to conduct searches.The tax officials then issued summons to the founder and CEO of the company asking how they could tax Bitcoin miners in India.It is worth noting that transactions through the website were not anonymous as users had to submit their PAN card details apart from those of their banks to buy or sell cryptocurrency, making it possible for the agency to track all the people who used the website.But the biggest fear of the RBI, the ED and the income tax department is that Bitcoins will be used to move around black money internationally because of the ease with which the virtual currency can be sold as opposed to doing it via banks.The sudden impact of these searches was that all the India-based websites on which people bought and sold Bitcoins suspended their operations."Online trading can stop for sometime but some people are still buying and selling Bitcoins with hard cash," said a source, who did not want to be identified.But now it seems the Bitcoin community is ready for a big face-off with regulators and investigative agencies.First, the Bitcoin community has formed an association called Bitcoin Alliance India (BAI) and second, websites such as Madovercoins.com and Bitquick.in have started operations too.Madovercoins.in is an Indian e-commerce website that accepts only Bitcoins and is targeted mainly at NRIs who want to buy Indian products.A new entrant, Bitquick.in, is claiming to help connect Bitcoin buyers and sellers in India directly to their banks.The websites show names of HDFC Bank, ICICI Bank, Axis Bank and Bank of Baroda."Buy Bitcoins in India instantly with NEFT/RTGS, IMPS or cash deposit from sellers with Bitcoin already in escrow for a low 1 per cent fee. Sell Bitcoins in India for cash deposited directly into your bank account for zero per cent fee," says a message on the Bitquick.in website.However, large operators such as Ahmedabad-based Buysellbitco.in and Inrbtc.com continue to remain suspended for want of a clearer regulatory framework.Newly formed body BAI wants to work closely with the government to create a proper legal framework for the virtual currency in India.-Bitcoin is experimental and the currency still in its Beta version.-All Bitcoin transactions are stored in a public ledger called the Blockchain that cannot be manipulated without the agreement of the majority of the network.-Bitcoin network or the block chain has never been hacked, proving that the security of Bitcoin is better than conventional systems.- However, Bitcoins are vulnerable to user-end exploits, and can be stolen if users do not protect their wallets on their computer.-The chances of a man-in-the-middle attack are nil.-The community acknowledges that it can be used for money laundering, much like cash.-In the presence of prohibition, governing or policing, it will become impossible and allow money laundering in the black market more accessible.-The Bitcoin community has and will always want government oversight and it has been ready to open a dialogue with the government.-Bitcoin exchanges should be the point where user data is collected, using KYC.-It is a vital point for providing traceable user information to tax authorities, and a point where regulation on the Bitcoin environment in India can be properly maintained.-We fear that the longer the uncertainty regarding the legal exposure stays, the sooner Bitcoins in India will be move out of the radar and move into unfavorable domains.-A community delegation will be happy to meet regulators. Working closely with law enforcement agencies will help the Bitcoin ecosystem become cleaner and safer.In a broader scenario, the Bitcoin community want the RBI to step in, not only to create policies to improve safety at the consumer's end and enforce a strict KYC system to avoid its use for black money but also to set up its own exchange and force all Bitcoin traders to make payments through its own setup.Now, the bigger fear within the investigative agency is that Indian black money will start flowing into Bitcoin trading, which is unacceptable and unregulated in Indian financial system as of now.Some days back, the Union Finance Ministry sought opinion on Bitcoin trading and its legality in India from officers of the Enforcement Directorate."Opinion given to the ministry was clear: Bitcoin trading in India is illegal," a source told India Today Online."Definitely, it is an illegal trade. Otherwise, ED would have not conducted searches on the two Ahmedabad-based entities," said a source in the ED.Within four years of coming into existence, Bitcoins have become the world's most expensive currency and their per unit value soared past $1,200 (around Rs 63,000) in November 2013.After slipping below Rs 50,000 recently, its prices have again moved back to near Rs 60,000 a unit.That's where the fear is. "It will be a shortcut to convert or transfer black money, and moreover, it would be a bigger and larger threat to existing currency in India," said the source.The ED also suspects that Bitcoins could be the root cause behind terror funding, money laundering and hawala transactions in India.Therefore, it will be interesting to see how the Bitcoin community in India really takes on regulators and agencies on this issue.