WASHINGTON (3/12/14)--While many have reported on the great promise that Bitcoin and other virtual currencies hold for consumers and businesses alike, buying and using digital currency such as Bitcoin carries certain risks, the Financial Industry Regulatory Authority Inc. (FINRA) warned Tuesday.
FINRA bills itself as the largest independent securities regulator in the U.S., with a central task of protecting investors by maintaining the fairness of U.S. capital markets.
"Speculative trading in Bitcoins carries significant risk. There is also the risk of fraud related to companies claiming to offer Bitcoin payment platforms and other Bitcoin-related products and services," FINRA wrote in an investor alert.
The alert reminds that:
Digital currency such as Bitcoin is not legal tender, and businesses and individuals are not legally required to accept it as payment. If no one accepts Bitcoins, Bitcoins will become worthless, FINRA writes;
Platforms that buy and sell Bitcoins, and digital wallets, can be hacked, costing consumers;
Bitcoin transactions can be subject to fraud and theft;
The account insurance and other safeguards provided by credit unions and banks are not provided to users of digital wallets;
Bitcoin payments are irreversible, and refunds are only made if a seller decides to provide them;
Bitcoin has been used in illegal activity, and thus, Bitcoin exchanges could be shut down by law enforcement agencies; and
Bitcoin prices can fluctuate wildly.
Many criminals also view Bitcoin "as a chance to steal your money through old-fashioned fraud," FINRA added. Warning signs of fraud include business claims that are not backed by financial reality, FINRA said.
For the full FINRA alert, use the resource link.