The RBI has told a parliamentary panel that they are "susceptible to misuse" by terrorists and fraudsters for laundering money.
The Reserve Bank further said it has not given any licence and authorisation to any entity or company to operate such schemes or deal with Bitcoin or any virtual currency (VC).
As such, any user, holder, investor, trader, etc dealing with VCs will be doing at their own risk, the RBI informed the parliamentary standing committee on finance.
An inter-disciplinary committee, which includes an RBI representative, has been constituted by the finance ministry to examine the regulatory framework with regard to virtual currencies, the central bank said.
"It is true that while virtual currencies may have legitimate uses, some of their characteristics like anonymity make them susceptible to misuse or abuse," the RBI said.
The central bank further said the opaqueness may be taken advantage by criminals, terrorists or fraudsters or for laundering money or even for transactions on the darknet.
Highlighting that there is no underlying or backing of any asset for virtual currencies, the RBI said huge volatility in their values has been noticed in the recent past.
The RBI retreated that it had cautioned users, holders and traders of virtual currencies about the potential financial, operational, legal, customer protection and security related risks they are exposing themselves to.