Many consumers have heard about Bitcoin, but they don’t necessarily know anything about it: not the full spectrum of benefits, and definitely not the risks they can expose themselves to by using it. And when it comes to lesser-known digital currencies, they often don’t even know their names, let alone anything else.
The US Consumer Financial Protection Bureau (CFPB) has finally decided to step in and publish an advisory explaining some of the things mentioned above.
Naturally, they concentrated on spelling out the risks: hacking, fewer legal protections, the cost, and scams that abound in the still nascent digital currency market.
“While virtual currencies offer the potential for innovation, a lot of big issues have yet to be resolved – some of which are critical,” the organization noted.
One of the things they warned about is the fact that virtual currencies are not issued or backed by any government or central bank, and that no one is required to accept them as payment or to exchange them for traditional currencies.
“If something goes wrong with your purchase of virtual currencies, do you know how to contact the seller? Some virtual currency exchanges do not identify their owners, their phone numbers and addresses, or even the countries where they are located,” the bureau warns. “Ask yourself: In any other business transaction, would you trust these people with your money?”
They also pointed out that consumers should be aware of the costs tied to the use of digital currencies (exchange rates, transaction fees, etc.), as well of the fact that their price is subject to dramatic price fluctuations.
For those believing that Bitcoin transactions are and always will be anonymous, the bureau has bad news: “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.”
Digital currencies are kept in digital wallets, and these wallets are secured with a private key that users should keep secret from everyone. Unfortunately, if this key gets compromised (via hacking) or lost, users can lose all of their funds – and have no legal way of getting them back.
“Read your agreement with your wallet provider carefully,” they advise. “If you have linked your bank account or payment card to your digital wallet, they may also be at risk.”
For additional information and insightful questions that users should know the answers to before embarking on the digital currency train, check out the helpful advisory.