Consumers have been warned by a federal watchdog about the risks of using cryptocurrencies like Bitcoin. The CPFB (Consumer Financial Protection Bureau) recently said that it will start gathering complaints from people who use products like Bitcoin and online exchanges.
The agency released an advisory mentioning that digital currencies are not supported by the government; furthermore, they have volatile exchange rates and are often targeted by scammers and hackers. Unlike bank accounts, deposits that are Bitcoin-based are not federally insured.
Bitcoin advocates agreed to CFPB's characterization of the crypto currency. Global policy counsel for the Bitcoin Foundation, Jim Harper, mentioned that the warning was "pretty standard", and that it was somewhat "helpful to the extent that it informs consumers without scaring them.” He added:
"There are consumer risks around new technologies, and even-keeled educational material from government agencies can help make consumers aware and savvy."
The warning issued by CFPB highlighted Bitcoin's increased volatility, mentioning that prices decreased tremendously to up to 61%. Harper's response to the claim was pretty straight. He said such volatility should fade away in the following 10-15 years, provided that crypto currencies become more common.
The warning comes 2 months after GAO (Government Accountability Office) asked CFPB to dig deeper into the digital currency industry. Richard Cordray, CFPB director, talked about the risks of cryptocurrencies, adding:
“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions. 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.”
- Richard Cordray, CFPB director
Filing consumer complaints with CFPB
The CFPB (Consumer Financial Protection Bureau) is an independent federal agency accountable for policing financial services and products. When the advisory was issued, it stated that it currently accepts complaints from users regarding services and products in the cryptocurrency market. The agency additionally cited some anecdotal complaints it received so far.
Apparently, there were some individuals who informed the agency that they haven't been able to recover stolen or lost funds from exchanges. Some other user had to throw away a hard drive with private keys to over 7,500 bitcoins. The invite for consumer complaints marks the agency's first comments on the Bitcoin industry. This can only mean that the crypto world is starting to be attentively monitored by government officials. The CFPB wants to understand digital currencies and the way they affect consumers.
Bitcoin reacts to CFPB's advisory
The initial reactions of the Bitcoin community to the federal regulations were mixed. CEO of Coinsetter, Jaron Lukasiewicz, a New York-based exchange, talked about the positive aspects of the report. Digital currency users of services and products should be well aware of product benefits, pricing, and security procedures. He adds:
“The CFPB’s bulletin provides a comprehensive list of the risks associated with Bitcoin, and I encourage anyone who is not already familiar with them to read it. 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.”
- Jaron Lukasiewicz, CEO of Coinsetter
There were some other reactions to the report, too. For instance, Marco Santori, chairman of the Regulatory Affairs Committee for the Bitcoin Foundation and New York business attorney, implied on Twitter that the warnings mentioned are a biased approach to basic facts of digital currencies.
.@CFPB publishes #bitcoin consumer alert. Not a single positive word on benefits to consumer financial privacy. t.co/B20eSqasQ6
— Marco Santori (@msantoriESQ) August 11, 2014
The ill-defined role of the government in regulating Bitcoin companies has turned into a controversial dispute in the Bitcoin community. Even though some people argue that a consumer protection framework for crypto businesses may stifle innovation, others argue that it could be extremely beneficial in terms of getting Bitcoin into the mainstream faster.
Community commentary
Barry Goldwon (Best Bitcoin Casino): "The Bitcoin adopters at present are well-aware of the risks even before they embraced it, and perhaps that’s one of the main reasons they did. These early Bitcoin users are brave enough to face innovations or the “Wild West” and be part of the development of Bitcoin to become a more stable currency and payment system. Yes, there are risks involved, but such advisory can very well apply for the fiat-operated payment methods too."
Eddy Truitt (Game Play Reward, CEO): "Yippie Kayay. No Risk, No Reward. I cant see this being any riskier then having your credit card stolen while shopping at a retail store such as Target stores, or having the same information hacked from the processing bank level, such as the hacks against Heatland payment systems, etc. The difference is, you can limit the amount you establish on a "wallet" and limit exposure. At the same time, this is much safer for merchants, since there is no ability to chargeback transactions. Some credit cards allow a chargeback up to a YEAR LATER. That sounds to me like the risk. But, hey, I'm just a guy on a soapbox."
Susanne Tarkowski Tempelhof: (Shabakat Corp. CEO): "It is the wild west, and that's a good thing. Ideas thrive in unlimited liberty, and frontier environments provides that. It's not for everybody, it's for people with the explorer mentality - the visionaries and the risk takers. The government should be grateful there are such people willing to take the plunge to advance ideas and economies for the greater benefit of society at large."
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