Weeks after Finance Minister Arun Jaitley informed the Parliament that cryptocurrency was not a legal tender in India, it has been reported that Mukesh Ambani-led Reliance Jio is planning to launch its own virtual currency- JioCoin.
According to a report in Mint, Reliance plans to hire 50 young professionals to work on blockchain technology. Blockchain technology is a decentralised digital ledger in which transactions made in cryptocurrencies are recorded chronologically and publicly.
“There are multiple applications of blockchain (for the company). The team would work on various blockchain products,” the report quoted a source as saying.
While the JioCoin plan is still in initial stage, the official did tell the business daily as to how Reliance Jio could use the new technology. He said: “It can be used in supply chain management logistics. Loyalty points could altogether be based on JioCoin.” The company’s new venture will be headed by Mukesh Ambani’s son Akash Ambani.
The report comes barely a fortnight after the Finance Ministry and the RBI clearly stated that the creation, trading or usage of virtual currencies as a medium for payment were not authorised by the central bank or monetary authority.
Finance Ministry Arun Jaitley underlined that the virtual currencies including Bitcoin don’t have any intrinsic value and are not backed by any kind of assets.
He said that cryptocurrencies were not legal tender and those indulging in such transactions were doing it at their own risk. Recently, the Income Tax conducted a survey on nine major cryptocurrency exchanges to investigate instances of tax evasion. The Tax authority has reportedly found that there are 6 lakh active cryptocurrency traders in the country.
Last month, the Reserve Bank issued its third warning, reminding the investors of its earlier concerns. In its earlier warnings, the RBI had said that it has not given any licence or authorisation to any entities to operate such schemes or deal with bitcoin or any virtual currency. The government has already constituted a panel under Economic Affairs secretary to deliberate over all issues related to cryptocurrencies and propose specific actions that need to be taken.
Presently, there are over 1300 virtual currencies in operation worldwide. India has identified 11 exchanges dealing with virtual currencies.
Here’s why the RBI and government think that cryptocurrency could pose risks to investors:
- The RBI says that virtual currency 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.
- Payments by virtual currency 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.
- There is no underlying or backing of any asset for virtual currency. As such, their value seems to be a matter of speculation. Huge volatility in the value of such currency -in this case bitcoin-has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.
- So far, cryptocurrencies are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of virtual currency on such platforms are exposed to legal as well as financial risks.
- It has been reported that usage of digital currencies are largely for illicit and illegal activities. The absence of information of counter-parties 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 laws.