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
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.

What We're Following See More »
PHOTO OP
Clinton Shows Up on Stage to Close Obama’s Speech
55 minutes ago
THE LATEST

Just after President Obama finished his address to the DNC, Hillary Clinton walked out on stage to join him, so the better could share a few embraces, wave to the crowd—and let the cameras capture all the unity for posterity.

‘DON’T BOO. VOTE.’
Obama: Country Is Stronger Than Eight Years Ago
1 hours ago
THE LATEST

In a speech that began a bit like a State of the Union address, President Obama said the "country is stronger and more prosperous than it was" when he took office eight years ago. He then talked of battling Hillary Clinton for the nomination in 2008, and discovering her "unbelievable work ethic," before saying that no one—"not me, not Bill"—has ever been more qualified to be president. When his first mention of Donald Trump drew boos, he quickly admonished the crowd: "Don't boo. Vote." He then added that Trump is "not really a plans guy. Not really a facts guy, either."

‘HILLARY CLINTON HAS A PASSION’
Kaine Sticks Mostly to the Autobiography
2 hours ago
THE LATEST

Tim Kaine introduced himself to the nation tonight, devoting roughly the first half of his speech to his own story (peppered with a little of his fluent Spanish) before pivoting to Hillary Clinton—and her opponent. "Hillary Clinton has a passion for children and families," he said. "Donald Trump has a passion, too: himself." His most personal line came after noting that his son Nat just deployed with his Marine battalion. "I trust Hillary Clinton with our son's life," he said.

TRUMP IS A ‘CON’
Bloomberg: Neither Party Has a Monopoly on Good Ideas
3 hours ago
THE LATEST

Michael Bloomberg said he wasn't appearing to endorse any party or agenda. He was merely there to support Hillary Clinton. "I don't believe that either party has a monopoly on good ideas or strong leadership," he said, before enumerating how he disagreed with both the GOP and his audience in Philadelphia. "Too many Republicans wrongly blame immigrants for our problems, and they stand in the way of action on climate change and gun violence," he said. "Meanwhile, many Democrats wrongly blame the private sector for our problems, and they stand in the way of action on education reform and deficit reduction." Calling Donald Trump a "dangerous demagogue," he said, "I'm a New Yorker, and a know a con when I see one."

TRUMP’S ‘CYNICISM IS UNBOUNDED’
Biden: Obama ‘One of the Finest Presidents’
3 hours ago
THE LATEST

Vice President Biden tonight called President Obama "one of the finest presidents we have ever had" before launching into a passionate defense of Hillary Clinton. "Everybody knows she's smart. Everybody knows she's tough. But I know what she's passionate about," he said. "There's only one person in this race who will help you. ... It's not just who she is; it's her life story." But he paused to train some fire on her opponent "That's not Donald Trump's story," he said. "His cynicism is unbounded. ... No major party nominee in the history of this country has ever known less."

×