Europe weighs up hazards of Bitcoin
Thefts from digital wallets have exceeded $1 million in some cases and traders aren't protected against losses if their virtual exchange collapses, the European Banking Authority said on Friday in a report warning consumers about the risks of cybermoney.
Virtual currencies such as Bitcoin have come under increased scrutiny from regulators and prosecutors around the globe. China's central bank barred financial institutions from handling Bitcoin transactions last week and German police arrested two suspects in a fraud probe into illegally generated Bitcoins worth €700,000 ($1,072,570).
"The technology is still relatively immature and lacks the infrastructure, regulation and understanding of the risks that are taken for granted in conventional financial systems," Matt Rees, assistant director at Ernst & Young, said. "It is not surprising then that thefts, frauds and other deceptions are currently commonplace."
Since Bitcoins exist as software, the virtual currency isn't controlled by any government or central bank. The digital money emerged in 2008, designed by a programmer or group of programmers going under the name of Satoshi Nakamoto, whose real identity remains unknown.
Bitcoins are being used to pay for everything from Gummi Bears to digital cameras online, with more than 12 million in circulation, according to Bitcoincharts, a website tracking the money's activity.
The virtual currency gained credibility last month after law enforcement and securities agencies said in US Senate hearings it could be a legitimate means of exchange.
Bloomberg
Frequently Asked Questions about this Article…
The European Banking Authority warns that trading Bitcoins can be risky due to potential thefts from digital wallets and the lack of protection against losses if a virtual exchange collapses. These risks highlight the need for caution when investing in Bitcoin.
Bitcoin is under increased scrutiny because of its association with thefts, frauds, and other deceptions. Regulators and prosecutors worldwide, including China's central bank and German authorities, are taking measures to address these concerns.
The lack of regulation means that Bitcoin lacks the infrastructure and understanding of risks that are typically present in conventional financial systems. This makes it more susceptible to thefts and fraud, affecting its safety as an investment.
Bitcoin's independence from government or central bank control means it operates as a decentralized currency. While this offers certain freedoms, it also means there is no regulatory body to provide oversight or protection for investors.
Bitcoin gained credibility after law enforcement and securities agencies acknowledged it as a legitimate means of exchange during US Senate hearings. This recognition has helped bolster its reputation despite the associated risks.
Bitcoin is used for a variety of online purchases, ranging from Gummi Bears to digital cameras. Its versatility as a digital currency makes it popular for everyday transactions.
Bitcoin was designed by an unknown programmer or group of programmers using the pseudonym Satoshi Nakamoto. The real identity of the creator(s) remains a mystery.
There are more than 12 million Bitcoins in circulation, and their activity is tracked by websites like Bitcoincharts. These platforms provide insights into the currency's usage and market trends.
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