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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.