Bitcoin Exchange Hack Highlights Virtual Currency Risks
By Consumers Union on Monday, January 5th, 2015
Not again?! It appears that another Bitcoin exchange has suffered a hack.
Bitstamp apparently lost about 19,000 bitcoins, according to news reports – that’s around $5 million – and is temporarily shutdown as of this writing (see screenshot for what we found when we went to Bitstamp’s website today).
In light of this news, now seems like a good time to review some of the risks of virtual currencies:
- The federal government does not insure virtual currency accounts.
That means that if an exchange fails after a hack, you are probably out any value that you stored there. (There are some virtual currency exchanges and wallet providers that offer deposit insurance, but that practice is not common.)
Bitstamp’s CEO Tweeted that the bulk of its bitcoins are safe, and its website – as of this writing – says that all consumer funds “are completely safe and will be honored in full” (squint and you can see that in the screenshot), so it may well be that Bistamp customers are out no bitcoins. That would be good news, of course, and unusual. After high-profile hacks (see here, here and here) consumers are usually out their value.
- There are no federal government protections against fraud and loss of virtual currencies.
If some crook abuses your bank account, say by using your debit card to buy stuff without your permission, your losses are (with some caveats) limited to $50 bucks under law, and the bank has to restore missing funds to your account fairly soon after you dispute the fraudulent transactions. Virtual currency wallet companies and exchanges are not bound by this law.
Bottom line: if there’s a crime against your virtual currency account, you could be out every last bitcoin or dogecoin, or whatever virtual currencies you had in there. This is just one thing to consider when you think about using virtual currencies. You can find a comprehensive treatment of the risks of virtual currencies in this consumer advisory from the Consumer Financial Protection Bureau.
Have a complaint about a virtual currency issue? Submit it to the Consumer Financial Protection Bureau here.
Have a story to share about using virtual currencies? We want to hear from you! Share your story in the comments.