"The real fear is that Bitcoin can be used to help money laundering," said V Rajendran, advocate and president, Cyber Society of India.

"The concept of a digital currency, unregulated by any monetary authority, is a recipe for disaster. The RBI must step in and regulate this immediately. Lured by so-called appreciation in Bitcoin value, people may invest in this and risk losing everything," he added.

After a phenomenal surge in the exchange rate for Bitcoin from little over $200 to well past $1,000 during November, the rates have seen an extreme volatility over the past few days -- falling suddenly to near $800 amid China's move and then soaring past $1,200 level.

"Bitcoins have no backing of any government which means in the event of a liquidity crisis, nobody is bound by law to help," said SN Ravichandran, an anti-cyber crime expert who helps police and other authorities regularly.

"The source of traditional hard currency converted into Bitcoin is unknown, no records are being kept. So, Bitcoin can very well be used to finance terror.

"We know what happened with Liberty Reserve, another digital currency. China and France have warned its banks from dealing with Bitcoin," he added.

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