A U.S. consumer protection agency is cautioning people against “stepping into the Wild West” of Bitcoin amid concerns the increasingly popular digital currency market is prone to hacking, scams and few recourse measures.
It’s a measure that stands in contrast to Canada, which in June mostly likely became the first country in the world to enact legislation regulating the virtual currency.
The Consumer Financial Protection Bureau (CFPB) issued a warning August 11 regarding digital currencies, and announced it would begin accepting complaints regarding such products and services.
“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” CFPB director Richard Cordray said in a statement.
“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.”
Bitcoin’s value is derived from its limited supply, usefulness and its peer-to-peer payment system that require no financial middlemen.
The new Canadian legislation means companies transmitting bitcoins are required to register as money services businesses (MSB), such as Moneytree or Money Mart. The new rules are aimed at reducing the risk of fraud and money laundering.
Mike Yeung, CEO of Saftonhouse virtual currency consulting group, said MSB regulations won’t solve everything but it’s a good first step for Canada.
“It prevents shady players in society from entering into Bitcoin,” he said.
“It’s more clear for entrepreneurs, people that are try to get into it, what the rules of the game are so they can go into it without worrying that whatever they’re doing is going to be retroactively illegal.”
But Yeung, who is also the president of the Simon Fraser University Bitcoin club, added it’s up to users to exercise due diligence when using the virtual currency.
He said people should back up their Bitcoin wallets in the event their smartphone crashes and avoid leaving money on the exchange longer than they need to.
“Don’t buy more than you’re willing to lose,” Yeung said.
The CFPB warning pointed out Bitcoin lost as much as 80% of its value in a single day in 2014 and 61% value in a single day in 2013.
Overall, however, the currency’s value had risen from US$110 in July 2013 to about US$620 in July 2014.