Abney and Associates, Indians lose crores in bitcoins as Japan exchange collapses

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 so far.

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 Rs 3,000 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 Rs 10-20 crore.

There are over 35,000 bitcoins (worth over Rs 100 crore) held by Indians across the country, while many 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.

Today, it costs about Rs 37,000 including charges and fees to buy just one bitcoin from Indian operators, many of whom have been doing business cautiously after the Reserve Bank last year issued an advisory warned the public about the potential risks associated with such currencies.

The bitcoin used to cost close to Rs one lakh a piece just a few weeks back, but price have 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 850,000 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 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.

"Because of their past delays, it was hard for Indian customers to transfer and receive fiat money from Mt Gox. But this could be a large-scale fraud as well. 8,50,000 coins globally can't be just stolen without coming under somebody's notice. It's next to impossible," said a bitcoin enthusiast, who works in a Bangalore headquartered IT firm.

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.