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Bitcoin-based pyramid schemes

Some small-time traders are taking advantage of the absence of rules governing crypto-currencies in India by creating multi-level marketing (MLM) or pyramid-like schemes with bitcoin as the base product.

The issue of multi-level marketing schemes is a global problem; however, these are now gaining traction in India owing to a lack of governing guidelines and the rapid rise in value of the crypto-currency, according to Digital Assets and Blockchain Foundation of India (DABFI), a self regulatory organization for bitcoin and blockchain companies.

  1. Typically, a small group of people come together to develop a code that will automatically transfer a certain percentage to users if someone in their network purchases bitcoin and brings in new members.
  2. Once the code is established, it becomes difficult to find out the source of this whole operation as each user plays the victim when it collapses.
  3. Since December 2016, the value of bitcoin has risen from around Rs57,000 to over Rs89,000 now, touching a high of Rs98,602 on 4 March, according to data available on the Zebpay website.
  4. According to data available with Tracxn, a website that provides financial information on start-ups, there are about 20 bitcoin firms in India now from just four in 2013.
  5. A crypto-currency is a digital currency created through encryption techniques. Bitcoin is the most famous. Some others are: litecoin, peercoin, namecoin, ether and primecoin. In India, most companies are associated with bitcoin.
  6. No monetary authority in the world backs crypto-currency and most are trying to find ways to regulate the market. The Reserve Bank of India (RBI) has released a white paper on crypto-currencies and blockchain to understand them better.
  7. The government does not have any formal guidelines governing the crypto-currency trade happening in India. RBI does not recognize bitcoin or any crypto-currency as a legitimate form of currency.
  8. In February, the central bank put out a cautionary note warning the public of the same and said anyone indulging in purchase or trade of crypto-currencies shall be doing so at their own risk.


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