by Zachary Q. Hoard
On August 11, 2014, the Consumer Financial Protection Bureau (CFPB) issued a consumer advisory warning consumers about the risks of virtual currencies, also referred to as “digital currencies,” such as Bitcoin. The potential risks include the threat of hacking and scams, volatile exchange rates, unclear costs, and the risk that companies offering virtual currencies may not offer help or refunds for lost or stolen funds. The CFPB also announced that consumers who encounter problems with a virtual currency may now submit a complaint with the CFPB.
Designed as an alternative to current payment systems, digital currencies, such as Bitcoin, XRP, and Dogecoin, are a way for people to track, store, and send payments over the internet. They are intended to make payment processing cheaper and faster. However, virtual currencies are not backed by any government or central bank. Therefore, because digital currencies are not backed by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, if a digital currency company fails—as many have—the government will not cover the loss.
Virtual currency companies have sprung up around the world in the last two years to offer products and services to consumers. One type of company is the virtual currency exchange, which is a company that helps consumers buy or sell virtual currencies. Another type of company is the “digital wallet provider,” which allows consumers to create accounts to store and manage their virtual currencies.
When dealing with a virtual currency company, consumers should carefully consider the following:
Read more articles about the Consumer Financial Protection Bureau at Dykema’s CFPB Blog
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