Virtual Currencies Come With Risks, CFPB Warns
Posted at 2:34 p.m. on Aug. 11, 2014
The Consumer Financial Protection Bureau says consumers should keep in mind the risks of using virtual currencies such as bitcoin, such as exposure to hackers and fewer protections than banks and credit cards provide.
The CFPB released a consumer advisory on Monday that states that virtual currencies “offer the potential for innovation,” but that “a lot of big issues have yet to be resolved – some of which are critical.”
The advisory warns that virtual currency “wallets” don’t have government insurance like banks do:
The Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund typically protects your funds if a bank or credit union fails. But this doesn’t apply to virtual currency accounts. So, if an exchange or wallet company fails — and many have failed — the government won’t cover your losses.
And for consumers who store virtual currencies themselves, the advisory warns that they could be targeted by hackers and that if their virtual money’s stolen, “no other party” will be there to help:
With a traditional bank account or payment card, if someone breaches your account, your bank or payment card company will help you recover some or all of your funds. If you’re storing your virtual currencies on your own computer, you’re basically on your own if your virtual currency is stolen.
Other things for consumers to keep in mind, according to CFPB: “tax treatment can be complicated;” the possibility of paying more using virtual currency than paying with dollars; the risk of losing money if users send virtual currencies to the wrong person; and large changes in prices of virtual currencies.
The bureau also said that consumers can file complaints regarding virtual currencies with the CFPB.
CQ Roll Call’s Kate Ackley reports that the Bitcoin Foundation says the warning from CFPB isn’t out of the ordinary:
Indeed, the Bitcoin Foundation called the consumer bureau’s warning a standard practice.
“It is standard practice for agencies at the state, federal, and international levels to issue warnings about Bitcoin,” said the foundation’s global policy counsel, Jim Harper. “There are consumer risks around new technologies, and even-keeled educational material from government agencies can help make consumers aware and savvy.”
Retailers such as Dell have started to accept bitcoins for purchases.
CFPB isn’t the only agency that’s weighed in on virtual currencies recently. Earlier this year, the Internal Revenue Service issued guidance saying virtual currencies would be treated as property, not currency, for tax purposes, and the Federal Election Commission ruled that political committees could accept contributions in the form of bitcoins.