Federal Consumer Advocate: Bitcoin Users, You’re ‘On Your Own’

The Consumer Financial Protection Bureau said Monday it will start taking bitcoin-related complaints.

A man talks on a mobile phone in a shop displaying a bitcoin sign during the opening ceremony of the first bitcoin retail shop in Hong Kong on February 28, 2014.
National Journal
Dustin Volz
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Dustin Volz
Aug. 11, 2014, 8:53 a.m.

Bit­coin and its brethren might soon change the worlds of fin­ance and bank­ing, but for now di­git­al cur­ren­cies are chock-full of cata­stroph­ic risks and dangers.

That’s the con­clu­sion of a strongly worded con­sumer ad­vis­ory re­leased Monday by the Con­sumer Fin­an­cial Pro­tec­tion Bur­eau, in­ject­ing an­oth­er dose of skep­ti­cism from fed­er­al reg­u­lat­ors in­to the de­bate over the safety of vir­tu­al cur­rency that is sure to draw ire from an ex­pand­ing com­munity of vir­tu­al pay­ment de­votees.

CFPB’s re­port warns of the risks of hack­ers and scams when us­ing bit­coin, and notes the in­creased volat­il­ity in the mar­ket be­cause the cur­ren­cies are not backed or in­sured by any gov­ern­ment en­tity and be­cause trans­ac­tions are of­ten an­onym­ous.

Due to bit­coin’s de­cent­ral­ized struc­ture, con­sumers may have little re­course for re­cov­er­ing stolen or lost in­vest­ments, ac­cord­ing to the ad­vis­ory.

“With a tra­di­tion­al bank ac­count or pay­ment card, if someone breaches your ac­count, your bank or pay­ment card com­pany will help you re­cov­er some or all of your funds,” the re­port reads. “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.”

It also de­clared that “bit­coin ‘ATMs’ are not ATMs at all” and sug­ges­ted the en­tire di­git­al cur­rency en­ter­prise was sus­cept­ible to Ponzi schemes, cit­ing re­cent ab­uses and crashes of prom­in­ent ex­changes over the past year.

Bit­coin is the most pop­u­lar brand of di­git­al cur­ren­cies, which can be swapped for tra­di­tion­al green­backs or used at a grow­ing num­ber of par­ti­cip­at­ing on­line vendors and brick-and-mor­tar re­tail­ers.

Bit­coin evan­gel­ists see it as a quick and in­nov­at­ive form of pay­ment that ducks some bank­ing fees typ­ic­ally as­so­ci­ated with on­line trans­ac­tions. But reg­u­lat­ors have long ex­pressed con­cern about di­git­al cur­ren­cies, which they say can provide bad act­ors with an an­onym­ous way to laun­der money and par­ti­cip­ate in drug traf­fick­ing.

The ad­voc­ates down­played the sig­ni­fic­ance of the CFPB re­port.

“This is a fairly stand­ard warn­ing,” said Jim Harp­er, glob­al policy coun­sel with the Bit­coin Found­a­tion. “I’d love for them to be thor­oughly pro-bit­coin, but their job is to warn, and that is what the re­port does.”

The con­sumer watch­dog also an­nounced it will start tak­ing com­plaints about di­git­al cur­rency ex­changes and wal­lets, as part of an at­tempt to bet­ter un­der­stand the grow­ing mar­ket.

Earli­er this year, the Gov­ern­ment Ac­count­ab­il­ity Of­fice en­cour­aged the con­sumer bur­eau to be more hands-on with cre­at­ing policies re­lated to di­git­al cur­ren­cies. The bur­eau, formed un­der the 2010 Dodd-Frank le­gis­la­tion that over­hauled fed­er­al reg­u­la­tions of the fin­an­cial in­dustry, agreed.

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