Summary: CFPB issues consumer advisory report on using virtual currencies and clarifies misconceptions and risks of using currencies like Bitcoin and Dogecoin.
The U.S. government’s Consumer Financial Protection Bureau (CFPB) released their first advisory on virtual currencies this August, and according to them, if storing or using virtual currencies, you are basically “on your own.” The CFPB advisory report (embedded below) strongly advises people to consider different implications of using virtual currencies including large price fluctuations and high risks.
The report says that virtual currencies like Bitcoin, XRP, and Dogecoin have high potentials of abuse including but not limited to the following:
•Virtual currencies are targets for hackers who have been able to breach sophisticated security systems in order to steal funds
•Virtual currencies can cost consumers more to use than credit cards or even regular cash once you take exchange rate issues into consideration
•Fraudsters are taking advantage of the hype surrounding virtual currencies to cheat people with fake opportunities
•If you trust a company to hold your virtual currencies and something goes wrong, that company may not offer you the kind of help you expect from your bank or debit or credit card provider
Besides the above, the report illustrated that consumers using virtual currency need to employ significant information and data management practices, without which they can be hurt. CFPB says, “If you’re storing your virtual currencies on your own computer, you’re basically on your own if your virtual currency is stolen. There is no other party to help you.”
To emphasize, the report mentions the case of one James: “According to news reports, James mistakenly discarded a computer hard drive containing his private keys for 7,500 Bitcoin in 2013. As of July 2014, that amount of Bitcoin was valued at nearly $5 million. James didn’t back up the drive and has not been able to locate the drive at the city dump. Consequently, he has lost all his funds.”
So, now, if you see a person frantically searching for something in the city dump, you know what his name is.
Jokes aside, the consumer advisory is full of relevant information including that Bitcoin ATMs are not are not ATMs at all, and the fact that the government does not insure virtual currency accounts. Scroll below to read the report.
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