Using Bitcoins unsafe, warns European Banking Authority

The European Banking Authority issued a warning about using Bitcoins as well as trading, holding or buying virtual currencies in general.

When using Bitcoins consumers are not protected through regulation, the European Banking Authority (EBA) added. Using Bitcoins as a means of selling and buying things is fraught with risk, including the possibility of losing one’s money.

EBA added that with virtual currencies “there is no guarantee that currency values remain stable.”

The banking authority says it has issued this warning while an assessment is underway regarding relevant aspects of virtual currencies to determine whether they can and should be supervised and regulated.

The EBA wrote in a communiqué:

”While virtual currencies continue to hit the headlines and are enjoying increasing popularity, consumers need to remain aware of the risks associated with them. In particular, consumers should be aware that exchange platforms tend to be unregulated and are not banks that hold their virtual currency as a deposit.”

“Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business.”

Using Bitcoins and the dangers of hackers

Using Bitcoins involves keeping a digital wallet containing your virtual currency on your smart phone or computer. These wallets are not hacker-proof.

There have been several cases reported of consumers losing large amounts of virtual currency, with virtually no prospect of ever getting it back. Under European Union law there are no refund rights for consumers who paid for goods or services using Bitcoins.

Bitcoins possibly are or could become misused for criminal activities because “transactions in the virtual currency provide a high degree of anonymity.” There is a risk of law enforcement agencies suddenly closing down exchange platforms, resulting in customers not having access to their funds.

EBA added:

”Consumers should also remain mindful that holding virtual currencies may have tax implications, and should make sure that they give due consideration to whether tax liabilities apply in their country when using virtual currencies.”

”The EBA recommended that, if consumers buy virtual currencies, they should fully understand their specific characteristics and not use ‘real’ money that they cannot afford to lose.”

Other central banks warn about using Bitcoins

Earlier this month, Chinese and French central banks warned about the perils of using Bitcoins. China’s central bank, The People’s Bank of China, told banks and other financial institutions not to provide bitcoin-related business.

The Bank of France warned its citizens that they might find it hard to convert their Bitcoins into real money.