• The circulation of Virtual Currencies which are also known as Digital/Crypto Currencies has been a cause of concern.
• This has been expressed in various fora from time to time.
• Reserve Bank of India had also cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to vide it’s press releases dated 24th December, 2013 and February 1, 2017.
• The committee will also include experts from the RBI, the central government’s think tank NITI Aayog and the country’s largest bank, State Bank of India.
• The panel has been asked to submit its report within three months and its terms of reference require it to take stock of the present status of virtual currencies both in India and the world over, examine the existing regulatory and legal structures governing them and suggest measures for dealing with such currencies.
• The committee, the ministry said, will necessarily examine how to cope with money laundering opportunities as well as consumer protection concerns that could arise from the use of virtual currencies.

Background:

• A virtual currency or virtual money has been defined in 2012 by the European Central Bank as “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.”
• Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
• It’s the first example of a growing category of money known as cryptocurrency.

What makes it different from normal currencies?

• Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
• However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who prints it?

• No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.
• Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.
• This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

Source: PIB & Coindesk.Com