Bitcoin fallout: Indians lose crores of rupees as Mt Gox goes kaput
Moneylife Digital Team 03 March 2014

Many affected Indians have used untaxed money for purchase of those bitcoins and were looking for easy returns in this so-far unregulated market. Mt Gox is estimated to have lost over Rs3,000 crore

In a rude jolt to growing virtual currency frenzy in India, bitcoins worth crores of rupees held by some Indians, have vanished with collapse of Japan-based Mt Gox, which was the world’s largest bitcoin exchange till now.


Having filed for bankruptcy, Mt Gox has admitted to have lost 7.5 lakh bitcoins of its customers and one lakh of its own, which together are estimated to be worth about $0.5 billion (over Rs3,000 crore).


The exchange was predominantly used by foreigners, including those operating on behalf of clients from India, while some Indians were directly trading there. In its bankruptcy filing, Mt Gox has listed 1.27 lakh creditors, bulk of which is foreigners and just about 1,000 from Japan.


The debacle can also intensify calls for stricter regulatory checks on bitcoins and other virtual currencies in India and other countries.


Most of the affected Indians refused to identify themselves, fearing probing questions from tax and other authorities in India as they had mostly used untaxed money for purchase of those bitcoins and were looking for easy returns in this so-far unregulated market.


However, many bitcoin operators and traders confirmed that majority of bitcoins held by Indians were being traded on Mt Gox and the value of those lost there could be at least Rs10-Rs20 crore.


There are over 35,000 bitcoins (worth over Rs100 crore) held by Indians across the country, while many non-resident Indians (NRIs) are also dealing in this popular virtual currency, which currently trades at $550 apiece but isn’t backed by any financial authority or real asset.


India, which is home to 200 million Internet users, has of late seen a tremendous rise in bitcoin enthusiasts lured by return potential, anonymous nature of transactions and pure novelty, among others.


At present, it costs about Rs37,000 including charges and fees to buy just one bitcoin from Indian operators, many of whom have been doing business cautiously after the Reserve Bank of India (RBI) issued an advisory warnin people about the potential risks associated with such virtual currencies.


The bitcoin used to cost close to Rs1 lakh a piece just a few weeks back, but price has tumbled for various reasons including for problems at Mt Gox.


After three weeks of speculation about the fate of the Tokyo-based exchange, which had suspended withdrawals early last month, the bitcoin fraternity was stunned after Mt Gox claimed hackers stole a total of 8.50 lakh coins.


Cyber criminals have been sporadically stealing bitcoins and its other siblings worldwide but this could be the biggest heist till date.


“There could be quite a few in India whose bitcoins have got stuck at Mt Gox. We at least know three Indians who have got affected,” said Sathvik Vishwanath, a founding member of Bitcoin Alliance India.


“The Mt Gox shutdown that happened did affect a lot of people. A few Indians we know have their BTC stuck there,” said Sylvester, who is part of a well-known group that organises Bitcoin meetups in Delhi.


While the Mt Gox debacle has hit the fledgling bitcoin community hard, the incident has also exposed the weak security of bitcoins, which exist as small software, against sophisticated hacking attacks. However, some believe blaming the entire incident on unknown hackers could be a way to hide severe accounting or process deficiencies in this case.


The virtual currency’s industry group, the Bitcoin Foundation, has sought to assure Bitcoin users that their funds won’t disappear due to theft or mismanagement. On last count, there were 140 virtual currencies having a combined value of $9.3 billion.


Side by side, the US and Japanese prosecutors have started investigations into events leading to the eventual shutdown of Mt Gox. The European Banking Authority is working to set up a task force soon to review options for regulating Bitcoin and such virtual currency derivatives.

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