The European Banking Authority (EBA) has issued a warning on the risks involved with virtual currencies like Bitcoin stating that consumers are not protected through any regulation and they may be at risk of losing their money.
The EBA warned about the stability of such virtual currencies and said that consumers should be weary of the risks involved with them. Specifically pointing out at the exchanges that act as platforms for trade of such virtual currencies, EBA said that they tend to be unregulated and they are not banks where users can hold their virtual money 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”, warned EBA.
The banking authority further added that virtual currencies stored on computing devices including laptops, desktops, smartphones and tablets through the use of ‘digital wallets’ are not hacker proof and that users may end up losing all their virtual currency in case their systems are hacked. “Cases have been reported of consumers losing significant amounts of virtual currency, with little prospect of having it returned.”
Bitcoins have surged in popularity since 2009 and had reached peaks of over £950 a piece just a few weeks back. The virtual currency is being used by quite a few consumers to pay for goods, services and even donations; however, authorities and regulators have only started giving Bitcoin some serious though now.
Britain’s financial regular have also stated that Bitcoin isn’t under its area of responsibility as the virtual currency doesn’t have a enough adoption and use to be considered as real money.
EBA has warned that users should be aware that they are not protected by any refund rights under EU law when they transact using virtual currencies.
Virtual currencies do not hold any monetary status; however, the EBA was quick to point out that users holding virtual currencies may be liable to pay tax and they “should make sure that they give due consideration to whether tax liabilities apply in their country when using virtual currencies.”
Germany has already declared that it won’t be give foreign currency recognition to Bitcoin and consumers who gain from trading of the virtual currency will be liable to pay tax. Norway has also said that it is thinking along the same lines.
