In February 2014, the Mt. Gox virtual currency exchange filed for bankruptcy, stating that a security breach resulted in the loss of bitcoins worth more than $460 million at the time. This incident is one of many real-world illustrations of the risks involved in using virtual currencies. In June, we released a report on virtual currencies and related consumer protection, regulatory, and law enforcement challenges. You can hear our podcast on it below. Basics of Virtual Currencies Bitcoin and other virtual currencies are not government-issued. They can be used to pay for goods and services, and can be exchanged for dollars or other currencies. This figure gives a brief overview of how consumers can obtain and spend bitcoins.
Image excerpted from GAO-14-496Risks and Benefits for Consumers Here are some of the risks consumers may face when purchasing, exchanging, and investing in virtual currencies:
- Virtual currency exchanges and wallet providers are not banks. If they go out of business, there may be no specific protections like deposit insurance to cover consumer losses.
- Some virtual currency wallet providers state that they will deny responsibility for consumer losses associated with unauthorized wallet access. In contrast, credit and debit card networks state that consumers have no liability for fraudulent account use.
- The prices of virtual currencies—and their purchasing power—can change quickly and dramatically.
Image excerpted from GAO-14-496
- We’ve also reported that virtual currency transactions may have potential tax compliance issues.