The RBI's first public warning on Bitcoin came on 24 December 2013, in a press release titled RBI cautions users of Virtual Currencies against Risks. It cautioned users, holders and traders of virtual currencies, including Bitcoins, about financial, operational, legal and security risks. It did not ban Bitcoin. It said the RBI was examining the issues, and it warned people that no central bank or monetary authority had authorised virtual currencies as a medium of payment.
I remember that release well, because it landed in the same month we launched Unocoin in Bangalore. Below is what the warning actually said, in its own words where it matters, followed by what our first week looked like from inside, and the pattern that followed over the next seven years.
What the RBI said on 24 December 2013
The release made two framing points before listing risks. First, that the creation, trading or usage of virtual currencies including Bitcoins as a medium for payment is not authorised by any central bank or monetary authority. Second, that no regulatory approvals, registration or authorisation was stated to have been obtained by the entities concerned.
Then it listed the risks. In plain words:
- Loss and security. Virtual currencies are stored in digital form, in what the RBI called electronic wallets. Losing a wallet could mean permanently losing the virtual currency in it.
- No recourse. Payments happen peer to peer without an authorised central agency, so there was no established framework for recourse to customer problems, disputes or chargebacks.
- No backing and volatility. There is no underlying asset backing virtual currencies, and the RBI noted huge volatility in their value.
- Unclear exchange status. Virtual currencies are traded on exchange platforms in various jurisdictions whose legal status was also unclear.
- Money laundering exposure. Because counterparties in these peer-to-peer, anonymous or pseudonymous systems may be unknown, users could unintentionally breach anti-money-laundering and counter-terrorist-financing laws.
Finally, the RBI said it was presently examining the issues associated with the usage, holding and trading of virtual currencies under the existing legal and regulatory framework.
Read thirteen years later, a lot of it holds up as a description of risk. Lose your keys and you lose your Bitcoin; that is still true. Bitcoin transactions cannot be reversed; still true. The price is volatile; still true. What the release could not know was how the industry would answer the other points: know-your-customer checks, anti-money-laundering registration and tax reporting.
Our first week, as I remember it
Unocoin launched in December 2013 at an event our Bangalore Bitcoin meetup group organised, which we called the Global Bitcoin Conference. The meetup had grown from coffee shops to the Leela Palace, about a hundred people every Saturday, and the question everyone kept asking was, can I buy some Bitcoin? Unocoin was our answer.
Within the first days of launching, as I remember it, about 30 people from the tax department showed up at our office. Our team was a handful of people. Picture a small office with more officials in it than desks.
Then, a couple of weeks after launch, the RBI posted its notice. For an industry that barely existed, it was enough. In my memory, that notice effectively shuttered the young industry for a while.
Why the warning hit an industry that barely existed
In December 2013 there was almost no Bitcoin industry in India. A few meetups, one very basic local site, and us. A warning from the central bank carries enormous weight with banks, payment partners and ordinary families.
Notice what the release did not say. It did not say Bitcoin was illegal. It did not order anyone to stop. It said the RBI was examining the issues. But when a central bank lists risks and says no authority has approved something, most institutions do not wait for the examination to finish. They step back. That was the real effect.
The notices that followed
The 2013 release was the first of a pattern. In my account of it, the RBI's buyer-beware notice came once right after we launched, a second time a few years later, and a third time in 2018, when it went much further.
In between, on 13 December 2017, the Income Tax Department surveyed nine Bitcoin exchanges across Indian cities under Section 133A of the Income-tax Act.
Then, on 6 April 2018, the RBI issued a circular directing the banks and other entities it regulates not to deal in virtual currencies or provide services to anyone dealing in them, with three months to exit existing relationships. That was no longer a warning. It cut exchanges off from the banking system. We had to lay off about a hundred people that year to survive.
The industry challenged the circular. On 4 March 2020, in Internet and Mobile Association of India v. Reserve Bank of India, a three-judge bench of the Supreme Court set it aside, holding that it failed the test of proportionality. My co-founder Harish was the individual petitioner whose rights were put in front of the judges. The full sequence, with documents, is on our Supreme Court page.
How to read a regulator's notice yourself
Whenever a notice about crypto comes out, from the RBI, SEBI, the tax department or anyone else, read the primary document before the headlines. Ask three questions. What does it actually order, if anything, and who is it addressed to? Is it a caution, a circular with legal force, or a tax change? And what date does it take effect? The 2013 release was a caution with no order attached. The 2018 circular was an order to regulated entities. The headlines about both sounded similar. The documents were not. Primary sources take ten minutes to read, and they save you from acting on someone else's reading of them. Every document mentioned in this post is linked from our Supreme Court page.
What changed, and what did not
A lot changed after 2013. In 2022 the Finance Act introduced a flat 30% tax on gains from virtual digital assets plus 4% cess, 1% TDS on transfers above the threshold, no set-off of losses, and Schedule VDA reporting in the income tax return. In March 2023, virtual digital asset service providers were brought under the Prevention of Money Laundering Act and had to register with FIU-IND. Unocoin is registered with FIU-IND as a reporting entity under the PMLA, and every account goes through KYC.
Some things did not change. Crypto products in India are still unregulated and can be highly risky, and there may be no regulatory recourse for any loss. That is close to the RBI's own point about recourse in 2013. Bitcoin's price is still volatile. Losing your keys still means losing your Bitcoin.
If I could tell the 2013 version of myself one thing about that press release, it would be this: the warning was right about the risks and wrong about what they meant. Risks are not a reason to stop. They are a list of things to build answers for. Most of what we built at Unocoin over the next decade was an answer to one line or another in that release.
Our founding story, from the meetups to today, is on the home page.
Common questions
When did the RBI first warn about Bitcoin?
On 24 December 2013, in a press release titled 'RBI cautions users of Virtual Currencies against Risks'.
Did the 2013 warning ban Bitcoin?
No. It cautioned users, holders and traders about risks and said the RBI was examining the issues. The later 6 April 2018 circular cut crypto businesses off from banks, and the Supreme Court set that aside on 4 March 2020.
What did the RBI say about virtual currencies?
That they were not authorised by any central bank or monetary authority as a medium of payment, and that they carried risks including loss of wallets, no recourse, volatility, unclear exchange status and money-laundering exposure.
When did Unocoin launch?
In December 2013, at the Global Bitcoin Conference organised by the Bangalore Bitcoin meetup group.