The federal regulator is warning consumers about using virtual currencies like bitcoins.
You may enjoy watching movies about the Wild West, where lawlessness reigned.
When it comes to your money, it might not be a good idea to invest it in virtual currency, recently dubbed the “Wild West” of the financial world.
The Consumer Financial Protection Bureau has issued a consumer advisory warning consumers about the risks of cryptocurrencies like bitcoins.
“Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market,” CFPB director Richard Cordray said in a statement.
The regulator cited a broad range of potential issues, including excessive costs, volatile exchange rates, vulnerability to hackers and scams, and the possibility that lost or stolen funds could remain that way, with no help or refunds available from the company responsible for holding your currency.
Earlier this year, Tokyo-based Mt. Gox – at the time, the world’s largest bitcoin trading platform – filed for bankruptcy after losing nearly $650 million worth of its customers’ bitcoins. The CFPB advisory also noted that bitcoins dropped as much as 80 percent against the U.S. dollar in just one day this year.
The CFPB said it is now accepting complaints from consumers who’ve encountered problems with digital currency services or products.
While bitcoins and other virtual currencies have the potential to make payment processing cheaper and faster, they are highly unregulated. And if a cryptocurrency company collapses, which has been known to happen, consumers will likely have to absorb the loss because virtual currency accounts are not insured by the Federal Deposit Insurance Corp. or the National Credit Union Share Insurance Fund, so the government won’t cover their loss.
The CFPB also warns that despite what many bitcoin users believe, their transactions are not always anonymous. According to the CFPB:
Information about each and every bitcoin transaction is publicly shared and stored forever.
Persistent, motivated people will likely be able to link your transactions to, among other things, your other transactions and public keys, as well as to your computer’s IP address. So it is possible that others will be able to estimate both how much bitcoin you own and where you are.
In March, the Internal Revenue Service said it would tax bitcoins like property, rather than currency, a move that made the currency “less attractive for investors to hold much value in bitcoins,” Reuters said.
If you’re still interested in virtual currencies, despite the warnings, the CFPB said it’s crucial that you do your homework and read your agreements with bitcoin wallet providers.
What are your thoughts on bitcoin? Have you, or do you plan to use them? Share your comments below or on our Facebook page.