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Consumer advisory: Virtual currencies and what you should know about them

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You may have heard about virtual currencies like Bitcoin, XRP, and Dogecoin. But what are virtual currencies? What’s this “to the moon!” business on the internet about? And, as a consumer, what risks should you be aware of?

While virtual currencies offer the potential for innovation, a lot of big issues have yet to be resolved – some of which are critical, including:

  • 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

Check out our consumer advisory for more things that you should think about if you’re considering using virtual currencies and links to other useful resources.

Submit a complaint

You can also submit a complaint if you have a problem with a virtual currency product or service. We’ll forward the complaint, along with any documents you provide, to the relevant company and work to get a response from them.

Complaint data helps us understand what business practices may pose risks to consumers. We’ll use the information to enforce federal consumer financial laws and, if appropriate, take policy steps.

  • empower

    Money , online money , or money that you can access online, of any sort is a target for hackers- this is a hacker problem not a Bitcoin problem. In fact online fraud is growing more and more- education is the key, ost peole are woefully unable to protect themselves properly online. This is in the process of being addresses in all sorts of fields- but will be a constant battle!
    Ditto for the fraudsters, they are a money problem, most fraud around the world is conducted in fiat currenct $ and £ etc.
    The whole point of BTC is to not trust a third party – so do not ! and if you do then it is the third party problem not BTC.
    As for the exchange rate – yes there is one… yes it moves atm.
    As for the fees- there are none or minimal for buying things WITH BTC- as for buying the actual BTC itself that depends on how you buy it/earn it/mine it, and who from where from, the exchange rate is a different matter all together.
    There is a learning curve and education needed to address these points – however
    Just wondering who protects the consumer from misleading articles like this one?

    Quis custodiet ipsos custodes?

  • Alberto

    Very well thought out. Glad the CFPB has outlined the consumer risks linked to Bitcoin and clarified misconceptions linked to Bitcoin being cheaper or more secure.

    • But..

      Ignorance abound. Do your due diligence, don’t expect something to good to be true, and approach this new financial paradigm for what it is… The ability to be ones own bank and end financial and corporate enslavement via decentralization.

    • ilhaguru

      Bitcoin is cheaper and more secure. That is a simple fact, Alberto.

      It’s just not ALWAYS the case. At least not yet. Bitcoin is still a couple years away from maturing and being ready for consumers everywhere. Therefore, some effort and education is necessary from anyone who wants to dabble in cryptocurrencies.

      • Alberto

        I agree in theory, if BTC powered the world; yes transactions would be cheap and the emergence of secure, insured Bitcoin vaults could mitigate the risk of a hack. In theory, Bitcoin is an incredible innovation. In theory, yes, it is a “simple fact.”

        The reality on the ground is quite different though. The world is powered by fiat, so fiat/BTC exchanges will always be needed, and as mentioned in the article above, factoring in the exchange rate, exchange fees, and needing to trust the exchange’s security, Bitcoin ends up costing more for consumers to use. Not to mention the inherent volatility.

      • Carrie M

        I’m confused on how that’s “a simple fact”. Bitcoin and it’s competition are still technically in infancy stage.

        • paulsnx2

          It is a simple fact because Bitcoin is a push model (meaning consumers do not risk unauthorized charges just because they made a transaction). Credit Cards are a pull model (meaning consumers risk unauthorized charges with EVERY transaction they make).

          This is a pretty simple fact: Credit Cards provide consumer protections not to protect consumers (we all pay for fraud with high fees and higher prices). Consumer protections protect the credit card companies by making consumers feel secure enough to use credit cards. But make no mistake. Credit card companies and banks MAKE money on credit card transactions, even after the cost of fraud is spread around over all the consumers.

        • ilhaguru

          The blockchain, so far, has been very robust and secure. No hackers there.

          It’s also true that bitcoin transactions are extremely cheap. Yes, due to its infancy a lot of people have little choice but to go through converting to BTC rather than accepting payments in it. That can make it more expensive depending on what it is you are doing, but the expense hinges on just that, your particular situation.

  • Satoshi

    Did the fine folks at Visa and MasterCard write this warning themselves? I would imagine they’ll fabricate most of the phony complaints as well.

    • Carrie M

      You’re stretching there, Satoshi. V & MC have major issues, true, but I don’t think they’re even worried for a second about BTC taking them over. They have better things to do than to file phony complaints. That’s conspiracy theory.

      • paulsnx2

        I doubt Newspapers worried about the Internet in 1990 either. VISA had their quarterly investor call, and fielded Bitcoin as their first question. They regularly make statements about Bitcoin. So, I wouldn’t write off Bitcoin just because it is a very new payment system. VISA and MC are not.

  • paulsnx2

    You have some rather glaring errors, ignoring the totally negative bias.

    “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. 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.”

    A contrast without a difference. If you keep your money at home and someone steals your dollars, you are out of luck. However if you keep your Bitcoin with an insured wallet provider (like Circle or Coinbase) they can recover some or all of your funds.

    And in reality, depending upon how the funds are stolen, “Identity Theft” is used by banks and payment systems to avoid responsibility for what is often poor security in their systems. Identity Theft costs consumers billions every year. Yet identity theft is much more difficult to use as an attack on Bitcoin security.

    “If you have linked your bank account or payment card to your digital wallet, they may also be at risk.”

    This is completely in left field. You can’t “link” a bank account to a digital wallet. You can link it to an exchange, or to a company like Coinbase for buying Bitcoin. But you can’t link a bank account to a wallet.

    “…if you don’t enter the recipient’s 64-character public key perfectly, you will send the funds to the wrong person.”

    Every Bitcoin Address has a 4 byte checksum embedded in it. You have less than a 1 in 4 billion chance of a typo of any sort sending your funds to the wrong person.

    “If you’re not using a hosted wallet provider (a service that helps manage your private keys), there’s no mechanism for stopping the payment or getting the money back.”

    Totally bogus. If you send BTC to Overstock, Dell, Expedia, TigerDirect, Gyft, or any of the other companies using Bitcoin as payment, and you over pay, you can prove you paid too much. They have every mechanism someone paying cash might have to refund payments. In fact, if you get a refund from CheapAir for an plane flight paid in dollars, you wait 2 weeks for processing. If you get a refund for a flight paid in Bitcoin, you wait a few hours.

    And having a hosted wallet makes no difference. None of the hosted wallet services are involved with whom you send Bitcoin to. The only possible exception might be Coinbase for sending Bitcoin to a Coinbase hosted merchant.

    This is just a start. This is a very poorly thought out and reviewed document.

  • BitcoinRob

    Folks, don’t give the CFPB a free education. I wouldn’t comment on a single thing in their advisory.

  • atlas-83

    I disagree with the CFPB’s initiative to collect complaints but not success stories. Please allow users to tell both sides of the story to bitcoin.

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