Enforcement directorate raided the office of Buysellbit.co.in and RBItco, websites that let people buy and sell bitcoin. According to ED, these website were in violation of Foreign Exchange Management Act (FEMA) rules as the central bank does not provide permission to make such transactions. The enforcement agency also said that around 1,000 transactions were made by 400 people through the buysellbit.co.in alone. The raid happened days after RBI posted an advisory on the use and trade of Virtual Currencies such as Bitcoin in India.
It is worth noting that transactions through the website were not completely anonymous as users had to submit PAN card details apart from those of the bank to buy or sell cryptocurrency, making it possible for the agency to track all the people who have used the website. An Ahmedabad-based forensic expert ECS Corporation (whose website or contact details we could not find) helped ED in the raid and they will work together to analyse the data collected from these two sites.
The biggest fear government has is that Bitcoin will be used to move around black money internationally because of the ease with which it can be sold internationally as opposed to doing it via banks.
Aftermath: Almost all the India-based websites that let people buy or sell Bitcoin have suspended operations following the raids. RBItco website has an “under maintenance” message while Buysellbit.co.in has suspended operations with a message, “Post the RBI circular, we are suspending buy and sell operations until we can outline a clearer framework with which to work.This is being done to protect the interest of our customers and in no way is a reflection of Bitcoin’s true potential or price”.
Unocoin, a bitcoin exchange that was recently started in India has disabled all logins and has suspended operations. (On a side note, this Reddit thread on Unocoin launching operations has a few interesting comments.) INRBTC, another website that was into bitcoin trading has also stopped functioning.
However, individual traders continue to buy and sell Bitcoin through platforms such as Localbitcoins at times even listing their mobile contact details. Most Indians on the site seem to prefer making payments via NEFT, but there are still a few people who are buying and selling them with hard cash.
MadOverCoins, an Indian eCommerce website that accepts only Bitcoin is still operational from the look of it. The website is targeted mainly at NRIs who want to buy Indian products. It might not be at risk as of now as the website does not let anyone move black money which seems to be the biggest concern of government agencies.
Benson Samuel, an evangelist for Bitcoin in India posted an announcement on BitcoinTalk through which he tried to “clear misconceptions and counter the fear raised by the media and the government agencies.” He also said that the Bitcoin community in India wants to work closely with the government to create a proper legal framework for the currency in India. Here are the main points he raised:
– The bitcoin community has repeatedly informed people that bitcoin is still highly experimental, and currently still in its Beta version.
– It is also decentralized with no central authority, and instead it relies on the network to provide this security, mainly through the assistance of bitcoin miners and the public ledger system. All bitcoin transactions are stored in a public ledger, called the blockchain, that cannot be manipulated without the agreement of majority of network.
– Bitcoin network or the blockchain 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 does not protect their wallet 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 would become impossible and would allow money laundering in the black market more easily accessible.
– The bitcoin community has and always will want government oversight and it has been ready to open 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 would be happy to meet regulators. Working closely with law enforcement agencies would help the bitcoin ecosystem become cleaner and safer.
The raids and the advisory have more or less placed a ban on Bitcoin activities in India, but that may not be the right way to handle this issue as pointed out by Samuel. It would be better if RBI steps in and creates policies that would help improve safety at consumer end and enforce a strict KYC system to avoid its use for black money. It could also set up its own exchange and force all bitcoin traders to make payments through its own set up. By making it almost impossible for companies to legally operate such a service, RBI is directing enthusiasts to more shady operators. Those who want to use Bitcoin for transferring black money will now be extra careful to hide their trail.
Remember what happened in America when there was a prohibition on alcohol? Gangs took over smuggling and distribution and they built up enough money and reputation in a short period. By the time the prohibition was lifted, it was too late as they already had the money to invest in smuggling of drugs and weapons. The bigger issue here is not the usage of bitcoins, but what they’re being used for, and the only way the RBI and government agencies can tell what it’s being used for is to regulate and track the virtual money trail.