Beware of Bitcoin, US consumer agency warns

[Coinbuddy]

Bitcoin and other virtual currencies can expose users to a number of risks, including hackers and scammers trying to take advantage of hype surrounding the technology, a U.S. consumer protection agency warned Monday.

Bitcoin and other popular virtual currencies such as XPR and Dogecoin offer fewer consumer protections than traditional banks or credit card providers, the U.S. Consumer Financial Protection Bureau (CFPB) said in a consumer advisory. The six-page document appears to be aimed largely at new users of virtual currencies, and it includes an explanation of virtual currencies and an advisory on how to buy them.

“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” CFPB Director Richard Cordray said in a statement. “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”

More on Bitcoin: How the virtual currency can go mainstream

Virtual currencies offer the potential for innovation, but “a lot of big issues have yet to be addressed,” the CFPB’s advisory said.

The CFPB advisory notes that virtual currencies are targets for “highly sophisticated hackers,” and they can cost consumers more to use than credit cards or cash. It also warns users to be prepared to weather large price fluctuations, with a one-day, 80 percent price drop in the value of bitcoins earlier this year.

The agency also warned users to be on the watch for Ponzi schemes and other scams related to virtual currencies. “Many criminals have seized upon the press and enthusiasm relating to virtual currency to create new versions of old scams,” the advisory said.

The CFPB advisory includes stories of people who’ve lost money using virtual currencies, including a man who mistakenly discarded a hard drive containing his privacy keys for US$5 million worth of bitcoins. Another Bitcoin user had about $10,000 worth of the currency stolen from an account maintained by a Bitcoin company and was not refunded, the advisory said.

Veterans of the Bitcoin industry said they welcome the report, but said it doesn’t give potential users a full picture of the currency.

The bulletin provides a comprehensive list of Bitcoin risks, and people not familiar with the risks should read the publication, said Jaron Lukasiewicz, CEO of Bitcoin exchange Coinsetter. “Not covered in the CFPB’s letter are the many benefits to using bitcoin, including the fact that it is a low cost alternative to banking for underprivileged families,” he added by email.

Barry Silbert, founder of online asset-selling marketplace SecondMarket, said he was happy to see the warnings, but he noted that some other currencies have similar risks.

“I think it is fair to say that a number of the risks highlighted could also be applied to cash,” he said by email. “Investing in bitcoin is indeed risky, but using it is no more risky than using physical U.S. dollars.”

[doubleredrolex]

BEWARE of paper money!! haha

theres a risk with cash also.. dropping it on the ground and losing it. Lighting it on fire.. getting mugged for it on the street.

[Neg]

Bitcoinand other virtual currencies can expose users to a number of risks, including hackers and scammers trying to take advantage of hype surrounding the technology, a U.S. consumer protection agency warned Monday.

I was going to say but what about cash or online banking, then saw:

“I think it is fair to say that a number of the risks highlighted could also be applied to cash,” he said by email. “Investing in bitcoin is indeed risky, but using it is no more risky than using physical U.S. dollars.”

I don't think people realise how to even keep safe most of their files to be honest.

[Daniel91]

Barry Silbert, founder of online asset-selling marketplace SecondMarket, said he was happy to see the warnings, but he noted that some other currencies have similar risks.

“I think it is fair to say that a number of the risks highlighted could also be applied to cash,” he said by email. “Investing in bitcoin is indeed risky, but using it is no more risky than using physical U.S. dollars.”

I agree with this statement.
Not just using physical U.S. dollars, also using credit cards for online shopping is risky.
Internet banking as well.
In fact, whatever we do in life is risky, but everybody should decide for themselves if they feel comfortable to do something or not

[franky1]

standard investment warning. noobs should read it and take the warning as a lesson that bitcoin is not free magical money that is guaranteed to make you rich.

summarized its just a standard warning, like saying "you can also lose and not just gain"

[bitcasino]

Bitcoin is a good thing but recognize the volatility, use paper wallets, and make sure your computer is secure! 

[Beliathon]

CASH and other paper currencies can expose users to a number of risks, including counterfeiters and scammers trying to take advantage of security weaknesses in the technology, a U.S. consumer protection agency warned Monday.

Cash and other popular paper currencies such as bank notes offer fewer consumer protections than traditional gold coins and other metals, the U.S. Consumer Financial Protection Bureau (CFPB) said in a consumer advisory. The six hundred-page document appears to be aimed largely at new users of paper currencies, and it includes an explanation of virtual currencies and an advisory on how to buy them.

“Paper currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” CFPB Director Richard Cordray said in a statement. "Fiat paper currencies are not backed by any rare metal or other scarce resource, they are susceptible to TOTAL LOSS in the case of a fire, and at this point consumers are stepping into the Wild West when they engage in the market. They risk losing untold millions to inflation if the government decides to print more of these dubious "reserve notes".

Paper currencies offer the potential for innovation, but “a lot of big issues have yet to be addressed,” the CFPB’s advisory said.

The CFPB advisory notes that paper currencies are targets for “highly sophisticated counterfeiters,” and they can cost consumers more to use than gold or silver coins. It also warns users to be prepared to weather large price fluctuations, as this new form of money is not pinned to the value of gold like traditional bank IOUs.

[ferda2mx]

Nice warnings, scammers are everywhere, so people must use brain before sending any BTC or cash to someone.

“Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”

What do you mean backed by something? When you finally default on paying national depts, what will my savings in this government backed currency be worth And government backed by what ? A trust ?

[Painful Truth]

Nice warnings, scammers are everywhere, so people must use brain before sending any BTC or cash to someone.

“Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”

What do you mean backed by something? When you finally default on paying national depts, what will my savings in this government backed currency be worth And government backed by what ? A trust ?

+1

And yet the average consumer gives a high value to anything "government backed" without knowing what exactly it means.

[Merriweather]

People should stop saying holding bitcoin is as risky as holding cash.  We all know that's just not true (in a physical sense).  Cash can't be hacked or lost in a number of other ways that bitcoin can.  It would behoove us to be honest about the challenges and instead of sugar coating them,  demonstrate how those concerns are being addressed. If you in fact know how they are or can be. If people have legitimate security concerns, acknowledge them. Hear what they are saying.  Don't be a holier than thou snob technocrat just because you feel you are more capable of securely holding your own coin. That attitude is so obnoxious and won't help attract more people to the space. If you keep saying "oh no its just like cash" and yet they then hear about some poor guy losing his stash to a phishing attack, it just doesn't bode well and they will likely be turned off.  Yes its risky. Here's why. How can you mitigate that risk?  Why might it benefit you to be an early adopter despite some of that inherent risk etc might be a better conversation. Maybe then they can appropriately see the risk vs. reward and make an informed decision instead of a decision based purely on fear and/or lack of information.

[Beliathon]

And yet the average consumer gives a high value to anything "government backed" without knowing what exactly it means.

"Government backed" means backed by armies and violence, basically.

When you support nation-state fiat scrip, you support violence.

[blatchcorn]

And yet the average consumer gives a high value to anything "government backed" without knowing what exactly it means.

"Government backed" means backed by armies and violence, basically.

When you support nation-state fiat scrip, you support violence.

To be fair, I don't blame the average consumer for having more faith in government than cryptography.

[Ron~Popeil]

These warnings should apply to any currency. The idea that bit coin is more expensive to use is suspect at best. 

[Mobius]

I think this is just a very liberal government agency trying to prevent people from making money with bitcoin. If people think they will be scammed if they use bitcoin then they will likely not use it at all and will not be able to unlock the opportunities that bitcoin can offer. Since the Obama administration wants people to rely on government they don't want people investing and being successful with bitcoin.

[hua_hui]

Everything has pros and cos, for example cash, credit card, internet, btc. No one will get rid of them for the sake of their drawback. We are always educated how to use them probably. The same principle is applied to btc. People should learn how the basic protocol and blockchain work and know  how to protect their wallet themselves.

[aztecminer]

BEWARE of paper money!! haha

theres a risk with cash also.. dropping it on the ground and losing it. Lighting it on fire.. getting mugged for it on the street.

yeah.. and the risk of holding cash for long periods of time the cash loses purchasing power ..
and holding cash in a bank runs the risk of getting bailed in and losing 50 - 75% of your wealth ..
really need to be careful when holding all your wealth in cash like that or someone will scheme it from ya.

[bitcoinminer007]

Bitcoin is a good thing but recognize the volatility, use paper wallets, and make sure your computer is secure! 

I agree with you. It is safer to use offline wallet than online wallet. Online wallet are getting hacked regularly.