The Consumer Financial Protection Bureau (CFPB) issued a warning on virtual currencies like Bitcoin and Dogecoin on its website today. In the warning, the CFPB sounds off some well-known issues that generally circle around Internet currencies, such as the risk of hacking, fraud and lack of regulation in holding houses.
Bitcoin, Litecoin, Dogecoin and a plethora of other cryptocurrencies are still under a shroud of mystery when it comes to the average citizen. Regulatory agencies like the United States Securities and Exchange Commission have issued warnings in the past in an attempt to educate consumers, as well as make them aware of the risks involved with them.
However, for every agency that tries to point out valid risks, other entities like the Department of Defense drive the curious away by labeling currencies like Bitcoin as subjects of terrorism research. That hasn’t stopped the expansion of acceptance of Bitcoin though, as a number of large retailers now accept the currency as payment. Dell, Overstock.com and Newegg all accept Bitcoins through a third-party for immediate exchange rates.
The warnings by the CFPB outline some of the general problems that are associated with the new style of currency, including hacking, a decreased level of protection compared to federally backed money, the cost of using them and the possibility of scams. In an informative brochure, the agency tries to give a brief education by outlining the basic knowledge and risk associated with cryptocurrency use.
Theft and a lack of support are the two biggest factors outlined in the document, pointing out that a number of frauds and hacks have been associated with the loss of entire wallets and large sums of money. CFPB asks users not only to be aware of the risks, but to actively protect themselves from hacks and be aware of deals that sound too good to be true. It’s also pointed out that if something happens, there is no agency to talk to. Consumers are left on their own.
An often overlooked piece of advice the document points out is human error. If a holder of virtual currency loses their key or if they store their private keys locally, and they are deleted or otherwise erased, consumers have no recourse. It places emphasis on the need to create backups of the information involved with the experimental currencies. A simple mistake can also see money being sent to the wrong person or the incorrect amount. Many places have no mechanisms in place to correct these sorts of issues.
It also draws attention to fees that may come with completing transactions with online currencies. Holding companies can charge consumers to store something like Bitcoins. ATMs used to withdraw funds can even come with steep per transaction charges. The CFPB points out that transaction fees up to seven percent have been witnessed, as have unfavorable exchange rates. Merchants can also alter prices for consumers paying with Internet currency.
The CFPB reminds consumers that it has a reporting system in place that allows complaints to be lodged against “a virtual currency product or service.” Once made, the claim and any supporting documents will be sent to the company involved. The CFPB will then work with them to obtain a response to the claim. The agency adds that the complaint system is important as the information can be used to enforce laws and policies.
