Consumer protection agency urges Americans to beware of Bitcoin, other cryptocurrencies

BY Charles Pulliam-Moore  August 12, 2014 at 6:58 PM EST
Photo by Flickr user btckeychain

Photo by Flickr user btckeychain

The Consumer Financial Protection Bureau released a primer on Monday meant to warn consumers about the potential dangers related to popular cryptocurrencies like Bitcoin, Litecoin, and Dogecoin. The CFPB, an agency that consolidates employees from the Federal Trade Commission, the Federal Reserve, and other federal regulatory bodies, also launched a website to collect cryptocurrency-related complaints.

Though lauded by technologists and early adopters, the CFPB explains the very real downsides associated with cryptocurrencies including hacking potential and the inherent lack of consumer protections. Cryptocurrencies, as their names suggest, are generally untraceable, digitally created mediums of exchange designed to exist outside of centralized banking and economic systems.

Unlike traditional forms of money, cryptocurrencies are “mined” using powerful computers that cipher through a finite number of “blocks” in which the coins are encrypted. The more blocks that are decrypted, the more difficult the the next set of blocks becomes to decipher. That, coupled with the limited number of blocks overall, creates artificial scarcity and value.

The decentralized nature of cryptocurrencies makes it so that technically anyone can participate in their creation and use. It also means that were anything to happen to the trading systems used to handle crypto-transactions, consumers would be left to their own devices.

Despite the complexity associated with their creation, cryptocurrencies’ mainstream popularity has been on the rise since Bitcoin was first described by its creator Satoshi Nakamoto in 2008. Following the Federal Election Commission’s ruling allowing political committees to accept bitcoin contributions this past May, a number of campaigns have sought to set themselves apart by soliciting the digital cash from donors. Representatives Jared Polis (D-CO), Robert Goodlatte (R-VA), and Mick Mulvaney (R-SC) recently hosted “Bitcoin 101,” a briefing to introduce and explain cryptocurrencies to Hill staffers as a part of “Bitcoin Demo Day.”

Andrew Hemingway, a Republican contender for New Hampshire’s gubernatorial seat, has reportedly raised 20 percent of his campaign funds in bitcoin alone.

More than merely financing his bid for the governor’s seat, Hemingway, 32, has expressed his desire to allow New Hampshire residents use bitcoin to pay for their state taxes, which would be a first in the country.