MADISON, Wis., and SAN FRANCISCO (5/2/14)--Two states have decided to publicly warn consumers and investors about the perils of breaking into the world of online currency, each specifically mentioning bitcoin, the currency's most popular form, in their respective notes.
The California Department of Business Oversight cautioned that currency exchanges--where bitcoin can be bought and sold--remain unregulated, and are susceptible to cyberattacks (San Francisco Business Times April 30).
The department specifically cites an incident that occurred in March when $350 million in bitcoin was stolen from the exchange Mt. Gox.
"As with many new investment opportunities, fraud potential is high," the department said, adding that it was also concerned about the extreme volatility of the currency.
Bitcoin can be purchased or sold through online, virtual currency exchanges.
The currency, which relies on a highly complicated algorithm and third-party "miners" to validate transactions, is stored in e-wallets online that require personal keys to access.
The Wisconsin Department of Financial Institutions, the second agency to express concerns over the currency, worries about it being unregulated and about its volatility as well.
"These alternative currencies--unlike traditional currencies--are not backed by tangible assets, are not issued by a governmental authority and are subject to little or no regulation," said Peter Bildsten, DFI secretary, in a press release. ". . . the concept behind the currency is difficult to understand even for sophisticated financial experts. Investors should be aware that investments that incorporate virtual currency present very real risks."
The Wisconsin department offers additional concerns about using the currency: