News Worms
News Worms

Govt says cryptocurrencies are Ponzi schemes, cautions investors

Govt says cryptocurrencies are Ponzi schemes, cautions investors

India's finance ministry has cautioned investors about the risks of trading in cryptocurrencies such as bitcoin, branding the "virtual currencies" as akin to a Ponzi scheme.

As defined earlier, a Ponzi Scheme is a fraud, a cheat; and if we go by Govt.'s definition, then all crypto-currencies, including $300 billion worth Bitcoins, is a big scam. "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.

The Finance Ministry of India touted what it perceives as a lack of intrinsic value in virtual currencies as reason to equate them with Ponzi schemes.

Cryptocurrencies are not legal tender and have no regulatory permission or protection in the country, the finance ministry said in a statement.

A Ponzi scheme is a swindle offering unusually high returns, with early investors paid off with money from later investors. "Virtual currencies don't have any intrinsic value and are not backed by assets".

The Indian government said those trading in them may become victims of cyber crimes as digital money units were stored in electronic format, making them vulnerable to hacking, loss of password and malware attack.

"VCs are neither currencies nor coins. As transactions of [virtual currencies] are encrypted, they are also likely being used to carry out illegal/subversive activities, such as terror-funding, smuggling, drug trafficking and other money-laundering acts".

"VCs are not backed by Government fiat". The market capitalization of digital tokens and coins exploded in 2018, with the two most prominent currencies, bitcoin and ethereum, rising by over 1,400 percent and 8,900 percent, respectively, over the past year.

Such a note may be directly addressed to existing traders of cryptocurrencies in India, as data from CoinMarketCap shows that a more prominent cryptocurrency exchange in India, Koinex, now sees a $115 million trading volume within 24 hours.

Regulators in countries such as Russia, China and South Korea have taken notice, issuing crackdowns.

It is estimated that India now accounts for over 10 per cent of the global Bitcoin trade.

"The Government or Reserve Bank of India has not authorized any VCs as a medium of exchange", the ministry said in the statement. New measures will require real-name cryptocurrency transactions and the government also plans to ban cryptocurrency exchanges.


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