Nation s Top Consumer Watchdog Warns of Bitcoin s Dangers

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Nation s Top Consumer Watchdog Warns of Bitcoin s Dangers

Is Bitcoin Speculative Foolery or a Financial Services Breakthrough?

August 11, 2014

Its just like mom always said, and its no different with Bitcoin: If it seems too good to be true, it may be.

So said the U.S. Consumer Financial Protection Bureau (CFPB) today, in a somewhat sternly-worded advisory warning to consumers about the potential pitfalls of doing business in Bitcoin. The alert also called out other cryptocurrencies, like Dogecoin and XRP, as potentially sketchy.

The message, which marked the federal consumer watchdogs first official comment on Bitcoin, was clear: If youre buying Bitcoin, youre jumping without a net into the risky world of cryptocurrency.

t.co/VcZm0e7xYw #bitcoin

consumerfinance.gov (@CFPB) August 11, 2014

Virtual currencies are not backed by any government or central bank, said CFPB director Richard Cordray, and at this point consumers are stepping into the Wild West when they engage in the market. He warned that, while virtual currency may have potential benefits, consumers should still educate themselves about digital currency and ask questions before they make the leap.

The four specific risks the CFPB advised consumers about in the six-page advisory alert are:

1. Hackers. These people are prone to prey on virtual currencies, the notice read. For instance, highly sophisticated hackers could unlock your virtual wallet, depleting all your funds.

2. Fewer protections. If you store your digital cash with someone else or a company, youre on your own when something goes wrong.

3. Cost. While there definitely can be an upside to Bitcoin, the CFPB said that virtual currencies can cost consumers much more to use than credit cards or even regular cash. Their reasoning is based on volatility and hidden costs.

4. Scams. Fraudsters are out to cash in on the Bitcoin buzz, cheating people with fake opportunities. The CFPB cited exchanges and traders as potential areas for scams to occur.

Nation s Top Consumer Watchdog Warns of Bitcoin s Dangers

The CFPB also said in the advisory that if youve ever been burned doing business with a Bitcoin (or other virtual currency) company, it wants to know. Its now accepting Bitcoin business-related consumer complaints online here .

t.co/SsiMj49s0c #bitcoin

consumerfinance.gov (@CFPB) August 11, 2014

Bitcoin proponents, like Jim Harper, the global policy counsel for the Bitcoin Foundation, didnt seem put off by the CFPBs warning and call for complaints. Comparing the notice to even-keeled educational material, Harper told the Associated Press that he found it helpful to the extent that it informs consumers without scaring them.

Bitcoin backer Barry Silbert. SecondMarket Holdings and Bitcoin Investment Trust founder, wasnt ruffled by the advisory, according to IDG News Service . He said in the report that a number of the risks listed in the CFPB notice could also apply to cash. Investing in bitcoin is indeed risky, but using it is no more risky than using physical U.S. dollars.

The Securities and Exchange Commission last year filed its first fraud lawsuit involving Bitcoin. claiming it was a Ponzi scheme. The agency later issued its own official warning about the cryptocurrency.


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