What’s the Buzz about Bitcoins?

Much has been written in recent months about bitcoins, the new digital peer-to-peer payment system that provides a personal Bitcoin wallet and allows users to send and receive bitcoins.

Bitcoins can be bought and sold online or at physical locations. A growing number of businesses and exchanges allow customers to buy and sell bitcoins using cash, credit cards, money orders and other methods.

Bitcoins can be traded for traditional currency at exchange rates that fluctuate. Bitcoin prices have been volatile and subject to wide price swings.

FINRA – the Financial Industry Regulatory Authority – advises that buying, selling and using bitcoins, however, carry numerous risks, including:

Digital currency such as Bitcoin is not legal tender. No law requires companies or individuals to accept bitcoins as a form of payment. Instead, Bitcoin use is limited to businesses and individuals that are willing to accept bitcoins. If no one accepts bitcoins, bitcoins will become worthless.

  • Platforms that buy and sell bitcoins can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can – and have – lost money.

  • Bitcoin transactions can be subject to fraud and theft. For example, a fraudster could pose as a Bitcoin exchange, Bitcoin intermediary or trader in an effort to lure you to send money, which is then stolen.

  • Unlike U.S. banks and credit unions that provide certain guarantees of safety to depositors, there are no such safeguards provided to digital wallets.

  • Bitcoin payments are irreversible. Once you complete a transaction, it cannot be reversed. Purchases can be refunded, but that depends solely on the willingness of the establishment to do so.

  • In part because of the anonymity Bitcoin offers, it has been used in illegal activity, including drug dealing, money laundering and other forms of illegal commerce. Abuses could impact consumers and speculators; for instance, law enforcement agencies could shut down or restrict the use of platforms and exchanges, limiting or shutting off the ability to use or trade bitcoins.

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