Bitcoin Users, You're 'On Your Own'

Alexander Kirch/

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.

(Image via Alexander Kirch/

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