The Bank of Greece issued an announcement / warning on the risks arising from the use of virtual currencies such as Bitcoin - including the risk of losing money - referring to a recent announcement by the European Banking Authority (EBA) entitled "Warning to consumers about virtual currencies".
Here is the complete announcement:
Warning to consumers about virtual currencies
Summary
The European Banking Authority (EBA) issues this Communication to highlight the potential risks that consumers may experience when buying, owning or exchanging virtual currencies such as Bitcoin. Virtual coins are still at the forefront of publicity and are increasingly popular.
However, consumers must be aware of the risks associated with virtual currencies, including the risk of losing their money. There are no specific regulatory safeguards to cover consumer damages if a platform that exchanges or owns their virtual currencies collapses or ceases to operate. While EBA is currently assessing all the relevant issues concerning virtual currencies in order to determine whether they can and should be regulated and supervised, it recommends consumers to be informed of the associated risks.
What are Virtual Currencies?
The virtual currency είναι ένα είδος μη ρυθμιζόμενου ψηφιακού χρήματος, το οποίο δεν εκδίδεται από κεντρική τράπεζα ούτε τελεί υπό την εγγύησή της και μπορεί να χρησιμοποιείται ως μέσο πληρωμής. Τα εικονικά νομίσματα έχουν προσλάβει διάφορες μορφές, ξεκινώντας ως νομίσματα που ο καταναλωτής χρησιμοποιεί – ενόσω είναι συνδεδεμένος στο διαδίκτυο (online) – σε ηλεκτρονικά παιχνιδια και σε κοινωνικά δίκτυα, εξελίσσονται δε σε μέσα πληρωμής, τα οποία γίνονται αποδεκτά σε περιβάλλοντα εκτός διαδίκτυου (offline) ή στην «πραγματική ζωή».
Today, the possibilities of using virtual currency as a means of payment for the acquisition of goods or services by retailers, restaurants or entertainment venues are increasing. Often these transactions do not involve any fees or charges and are carried out without the involvement of a bank.
Recently, Bitcoin has created the conditions for a new generation of peer-to-peer virtual coins - also called cryprobes. Following the recent development of this Bitcoin coin, dozens of other virtual coins followed.
How do virtual coins work?
Using Bitcoin as an example, virtual currencies can be purchased on a swap platform using conventional currencies. They are then transferred to a personalized account at Bitcoin, called "digital wallet". Using this wallet, consumers can send Bitcoins "online" to anyone else willing to accept or convert them into a conventional "official" currency (such as the euro, the pound or the dollar). Each new Bitcoin is created online using a high-computing software called Bitcoin Mining Software.
It is a software which, through the deliberate solution of complex algorithms, allows consumers to "extract" (create) small quantities of the currency. However, the increase in the money in circulation is fixed, with the result that only small amounts of the virtual currency are released over time.
What are the risks that consumers need to know?
EBA has identified several features and risks that consumers need to know when buying, owning or exchanging virtual currencies.
You may lose your money on the exchange platform
Virtual coins can be bought directly from someone who owns them or through an exchange platform. Typically these platforms are not subject to regulation. Some exchange platforms have ceased to operate or collapsed - in some cases due to a third party violation. EBA knows cases of consumers who have permanently lost substantial sums of money that 'kept' on these platforms. You should be aware that exchange platforms are not banks that keep virtual currencies in the form of deposits. If an exchange platform loses money or collapses, there is no specific legal protection - for example, a deposit guarantee system - which covers losses from any loss of funds held on the exchange platform, even if the exchange platform is registered a national authority.
Money can be stolen from your digital wallet
When you buy a virtual currency, it is stored in a "digital wallet", on a desktop or laptop computer or in a "smart phone". Access to digital wallets is provided with a public key and a private key or password. However, digital wallets are not inviolable against electronic pirates (hackers). So, as with conventional wallets, they can steal money through them. There have been reported cases of consumers who have lost virtual currencies worth more than 1 million US dollars, and their prospects of recovering are minimal. In addition, if you lose your password or password in your digital wallet, you may lose your virtual currency forever. There are no central password registration or password replacement services.
You are not protected when using virtual currencies as a means of payment
When you use virtual currencies as a means of payment to acquire goods and services you are not protected by refund rights that – under EU law – are provided for, for example, transfers from a conventional bank or other payment account. Therefore, offsetting unauthorized or erroneous charges to a digital wallet is usually not feasible. Also, the acceptance of virtual currencies by retailers is not permanently guaranteed and is based onreview at their discretion and/or in contractual agreements, which may cease to be valid at any time and without notice.
The value of your virtual currency can change quickly and can even be zero
Η price of Bitcoin and other virtual currencies has grown significantly. This has prompted some consumers to invest in them. However, you should be aware that the value of virtual currencies has been highly volatile and can easily fall as well as rise. If the appeal of a particular virtual currency decreases, for example because another virtual currency became more popular, it is very likely that its value will decrease significantly and permanently. If you buy virtual currencies to use as a means of payment, you are exposed to the volatility of the price of these currencies: unlike money paid into a traditional bank account or a payment account denominated in "official" currency, there is no there are guarantees that the value of your virtual currency funds will remain relatively stable.
Virtual currency transactions may be misused for criminal activities, including money laundering
Transactions in virtual currencies are public, but the holders of currencies and recipients of transactions are not. Transactions are largely undetectable and give virtual currency consumers a high degree of anonymity. Therefore, the virtual currency network is likely to be used for transactions that are related to criminal activities, including money laundering. This abuse may affect you, as law enforcement agencies may decide to close exchange platforms and block access to funds or the use of funds that consumers may hold.
You may be subject to tax obligations
You should be aware that the possession of virtual currencies may have tax consequences, for example subject to value added tax or capital gains tax. When using virtual currencies, you need to consider whether tax obligations apply in your country.
How can consumers be protected?
If you are buying virtual currencies, we recommend that you fully know and understand their special features. You shouldn't use "real" money as long as you can't "afford" to lose it. You should also exercise the same care with your digital wallet as you would with your conventional wallet or purse. You should not keep large sums of money in it for a long time space and you must ensure its safety and protection. You should also be informed about the ownership status, business model, transparency of the exchange platforms and how the wider public perceives the exchange platforms you may use.
Source: naftemporiki.gr
