Trading Bitcoins could bleed you dry, the European Union's top banking regulator said as it weighed up whether to regulate virtual currencies.
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.