back to article Go on, buy Bitcoin. But DON'T say we didn't WARN YOU

Buying virtual currencies, such as Bitcoin, presents a number of risks that consumers should be aware of before purchasing such assets, the European Banking Authority (EBA) has warned. The regulator said that because virtual currency is not regulated, consumers risk losing their money by "buying, holding or trading" them. " …

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  1. Crisp Silver badge

    Too be fair

    A lot of those risks are the same with regular currency.

    There's nothing that the EBA can do if someone nicks my leather wallet either.

    1. Turtle

      Re: Too be fair

      "There's nothing that the EBA can do if someone nicks my leather wallet either."

      But most people don't use their wallets as bank accounts, nor keep significant portions of their net worth in them. No one is getting into Bitcoins for the sake of stashing a couple of hundred bucks.

      1. Jonathan 29

        Re: Too be fair

        Keeping a couple of hundred bucks in a virtual digital wallet to pay for small stuff was exactly my intention when I started and I think was probably the intention of the inventor. Bitcoin is supposed to make small value items cheaper by removing the costs imposed by banks and credit card companies. I have never been convinced it works for larger transactions even when you have to pay a bank to transfer funds via a banker's draft or CHAPS payment. it definitely has a niche though.

        1. Syren Baran
          Go

          Re: Too be fair

          "Keeping a couple of hundred bucks in a virtual digital wallet to pay for small stuff was exactly my intention when I started and I think was probably the intention of the inventor. "

          Basicly the same way i look at it. Instead of having a small amount of cash in my paypal account might as well have it in a bitcoin-wallet. Well, at least assuming the prices settle somewhere long term.

          Doesnt matter how much a single coin costs as long as you have like a hundered (or whatever) bucks worth of them in your wallet, instead of pretty much $(daily_random_value).

      2. Anonymous Coward
        Anonymous Coward

        Re: Too be fair

        I think many Cypriots would have done better off last year leaving their money in Bitcoin even if it hadn't gone crazy.

      3. P. Lee Silver badge

        Re: Too be fair

        Maybe true, but have a chat to the Cypriots about keeping your net wealth in the bank and see what they tell you.

  2. Fibbles

    So, the police can seize bitcoins (leaving their owner without any means of redress,) because they don't regard bitcoins as a 'real' asset, yet the taxman will still tax you on these virtual assets...

    Surely the state can't have it both ways?

    1. Shady

      It is panto season....

      ... oh yes they can! (but they shouldn't)

    2. Gav

      Makes your choices and takes your chances

      Where does this article say that the police would not regard bitcoins as a "real" asset?

      The risk here is no different from storing your cash in a bank that got closed down due to illegal activity. Until the matter is sorted out, you will have difficulty accessing your money. It may never get sorted out. In which case, tough luck, you are a victim of crime and making the mistake of storing your wealth in an institute that shouldn't have been trusted.

      1. Fibbles

        Re: Makes your choices and takes your chances

        "Where does this article say that the police would not regard bitcoins as a "real" asset?"

        That's poor phrasing on my part, sorry. What I meant was that the police and prosecutors don't think they have to follow the usual laws surrounding asset seizures. This is because bitcoins are neither a tangible asset nor are they a currency - not even an electronic representation of a real-world currency. Bitcoins are (as I understand at least) just hashs and AFAIK it is not possible to 'own' a hash.

        A few months back the Dutch authorities seized a bitcoin exchange that was allegedly run by people engaged in money laundering. Plenty of innocent people had bitcoins stored on the exchange. The Dutch just liquidated them all into real currency which they kept. There's no chance of anyone getting their bitcoins back since they didn't 'own' them in the first place.

        1. TheOtherHobbes

          Re: Makes your choices and takes your chances

          It's surprising that wasn't challenged legally. It's like arguing that your bank balance is meaningless because it's just a number, and numbers can't have value.

          The authorities might have had a point if they'd simply destroyed the hashes. But once they sold them it should have been easy to argue that they received currency with tangible benefit, and therefore in practice the hashes were a tangible asset.

        2. Kobuzz

          Re: Makes your choices and takes your chances

          In this case it sounds like the Dutch authorities are punishing the people unnecessarily, and making a point not to undermine standard government units or that we (the real crooks in questions) will take them. Sound about right? That is why you don't keep them on an exchange, simple, keep them encrypted on a removable storage device... and/or on your secure device

      2. Tom 13

        Re: Makes your choices and takes your chances

        Actually if you have your money in a bank that was closed down for illegal activity you WILL get your cash back so long as you weren't part of the illegal activity.

        1. Yet Another Anonymous coward Silver badge

          Re: Makes your choices and takes your chances

          But if you had data on a cloud service that was being used for pirating movies and it is shut down - you don't get your data back

      3. jonathanb Silver badge

        Re: Makes your choices and takes your chances

        It is like what happened to the carousel fraudsters who deposited their money in First Curaçao International Bank.

    3. Yet Another Anonymous coward Silver badge

      cos they have the men with guns?

    4. tom dial Silver badge

      Why not? I am reasonably sure it happens with some frequency in the US with criminal asset forfeitures. The assets are forfeited, all too often under seriously questionable conditions, but the IRS regards income gained from criminal activity the same way it looks at income from legal employment: subject to income tax.

  3. Anonymous Coward
    Anonymous Coward

    Tulips !

    It's just like tulip mania of the 17th century, bitcoin owners beware.

    1. Cliff

      Re: Tulips !

      I suspect that's exactly what it is. Last year it was gold, and anyone ramping it would give a dozen different reasons why it would only go up forever (Indian jewellery, scarcity, 'because China', PCB manufacture, etc), yet it's 30% down on that peak now and the gold rampers have had to find another target.

      I'm certain this volatility is down to news hyperbole much like gold 18 months ago. Bitcoin could be the start of something new and useful, but all the 'me too'/quick buck guys are giving it a dirty image as a speculators paradise at the moment. The maths behind it is genuinely impressive, the twonks ramping it aren't.

      Hopefully it'll settle and find its true level as well the hundred or so copycat coins cashing in on a free ride on the hype. Then it may be useful for more than triangulation between other currencies exchange (something that can already be done by other means, but it is a good addition to the gene pool)

    2. Marvin O'Gravel Balloon Face

      Re: Tulips !

      Ah yes, who can forget.

      I tried Bitcoin, but got bored waiting for the entire history of all transactions everywhere to be downloaded to my virtual wallet. Seemed pretty unwieldy to me. I've probably lost a fortune as I gave up and did something else...

      1. Titus Technophobe

        @Cliff Volatility

        The volatility may also have a fair bit to do with the news around Bitcoin. As mentioned in this report the EBA have issued a health warning, and China appears to have banned Bitcoin.

        In other news the US have been issuing warnings to do with Money Laundering on Bitcoin businesses. These would seem to be appropriate given that one of the most well know marketplaces was closed down by the FBI for trading stuff that would require money laundering....

        1. This post has been deleted by its author

        2. Kobuzz

          Re: @Cliff Volatility

          This is because the crooks in business at the top now are threatened perhaps. If I was them I'd be sending out the headhunters too. Same reason cancer cures will not be allowed in society. People are asleep. Anything that has the potential to destroy paper currencies, and bring about a free market over time will ruin their main controlling societal pin. I'm not a bitcoiner but I sure am thinking about it now that the price has settled down a bit. What governments of the world are starting to realize is that it is potentially beyond the reach of the grubby little fingers.

      2. jb99

        Re: Tulips !

        So use a wallet that doesn't download the entire blockchain. There are several choices, they use an online service to get information but your wallet is still secure on your pc.

      3. Mark .

        Re: Tulips !

        Note that downloading/storing the entire blockchain is no longer a requirement for a bitcoin wallet.

    3. Jonathan 29

      Re: Tulips !

      I rather loathe the Tulip example. Most accounts are based on a single 1841 work by Charles Mackay which itself is based on propaganda. There is a growing body of research that says that far from being a widespread mania was just confined to a small group of bored rich gentlemen trying to distract themselves from the horrors of the plague. Other bubble examples may be more pertinent.

      1. Anonymous Coward
        Anonymous Coward

        Re: Tulips ! @ Jonathan 29

        It's a good example, where hot money chases a commodity (or interest/exchange rate) and distorts the market only to return to it's natural level later with disastrous consequence for the late investor.

        History is littered with bubbles:

        Canal mania, railway mania, south sea bubble, Barber boom, Dotcom bubble, numerous property booms - the list is endless.

        "When you see a bandwagon it's too late." - Sir James Goldsmith (but I suspect it's an old gold rush saying).

        The smarts have already been and gone, taking their profits with them, the only people still there are the fall guys who are going to learn the hard way.

        To quote from the best black comedy ever written, Kind Hearts and Coronets (1949)

        "The fact is, old boy, we sold short...and the market hasn't dropped as we expected."

        "I feel entitled to point out that we here...regard our function as the encouragement of constructive investment...and not the financing of mere gambling transactions."

        1. d3rrial

          Re: Tulips ! @ Jonathan 29

          Point was, that the Tulip Mania remains disputed, due to inconclusive historical evidence.

          Then again I must say, how long can tulips stay in shape until they rot and become worthless? I've never heard of Bitcoin or Gold to rot, or physically degrade into a worthless shape. (Not taking irradiated gold into consideration, Goldfinger says hi)

          1. Frumious Bandersnatch Silver badge

            Re: Tulips ! @ Jonathan 29

            Then again I must say, how long can tulips stay in shape until they rot and become worthless?

            Notwithstanding the post above casting doubt on whether "tulip mania" was a real thing or not, apparently it wasn't about speculating on the value of particular tulips (which will rot, as you say) but a bet on the futures market-how much a particular genetic line might be worth... though again with the caveat that predicting whether a particular line will produce interesting (read "valuable") blooms is notoriously difficult.

            As for Bitcoin, it does seem to have all the classic hallmarks of a bubble, but a halving of value does, paradoxically, make it more attractive right now...

        2. Anonymous Coward
          Anonymous Coward

          Re: Tulips ! @ Jonathan 29

          Bitcoin is not in a bubble.

          Bubbles grow, grow and grow more and then pop.

          Bitcoin is volatile but with 50% downward swings this week it is certainly not a bubble!

          Those who believe otherwise will be feeling rather gutted by next summer!

          1. jonathanb Silver badge

            Re: Tulips ! @ Jonathan 29

            This particular 50% downward swing is a bear trap. They do happen fairly frequently in the upward phase of a bubble.

        3. Mark .

          Re: Tulips ! @ Jonathan 29

          So use one of those examples then.

          But you won't, because things like property, dotcoms etc, whilst they've had bubbles, are still things that recover, and indeed go on to boom. The Internet was a bubble, but not in the sense that it disappeared - far from it.

          No, Bitcoin critics cling to the Tulip example not because of the bubble aspects of Bitcoin, but because they want to compare it to something utterly laughable, as well as something that's useless as a currency or store of value (even though none of the reasons for that apply to Bitcoin).

          1. Anonymous Coward
            Anonymous Coward

            Re: Tulips ! @ Mark

            Yeah right Mark, go tell that to Bernard Madoff.

            I'll take a standard medium of exchange that's backed by national wealth, Swiss francs will do nicely.

            1. Titus Technophobe

              Re: Tulips ! @ Mark

              Bitcoins value is determined solely by the belief of the market that it has value. The problem with bitcoin is that unlike money as such it has no powerful sponsor.

              So for example above 'rm -rf' quotes the Swiss Franc which has value because the Swiss government and banks say it has value (as do probably a lot of well heeled people holding bank accounts in Switzerland).

              The key question then is why people (other than for use in illegal markets) will exchange bitcoin for other currencies. Particularly if more established fiscal markets start to either warn against, reject or outright ban bitcoin.

              This is happening now and as I have speculated above may well be having a direct effect on the value of bitcoin. Personally I would assume that if there is sufficient adverse bitcoin news from reputable fiscal organisations it's value will collapse completely.

              1. Yet Another Anonymous coward Silver badge

                Re: Tulips ! @ Mark

                >Bitcoins value is determined solely by the belief of the market that it has value

                Any currency only has value because the market believes it has value.

                Having a government backing it doesn't necessarily help. Ask anyone holding Reichsmarks in 1945 or confederate dollars in 1865, or Iranian Rials in 201x.

                The idea of bitcoin was that it was a universal currency that could be traded without the permission, knowledge and fee taking from VISA/Amex/Paypal. It's no more anonymous than them and is used in astronomically fewer criminal activities than the good old $ in which we trust

                1. Anonymous Coward
                  Anonymous Coward

                  Re: Tulips ! @ YAAC

                  "Any currency only has value because the market believes it has value."

                  A currency is in effect a promissory note, an IOU which may be exchanged for goods and services. Now there is a certain demand for these IOU's based on the underwriter's (normally government or bond issuer) ability to honour these promissory notes which is what gives a currency it's worth. If the government is broke or unable to honour all these notes then the value falls or at worst it becomes worthless (see Weimar Republic) and you are left holding nothing. Of course confederate dollars were worthless because the confederate government was broke.

                  Now bitcoins are promissory notes which are not backed by any financial institution or state and are wholly valued by floating free market exchange rate mechanisms which makes them very risky indeed. As yet the minting of bitcoins has not been cracked so the promissory notes retain perceived value solely on the basis of encryption algorithms. The crash of 2008 will be nothing compared to the coming bitcoin market crash, at least in a UK bank the deposit is guaranteed up £85000.

                  1. Yet Another Anonymous coward Silver badge

                    Re: Tulips ! @ YAAC

                    Outside the country (we do trade internationally!) a currency only has the value that the currency markets place on it. Whatever statements the government of $COUNTRY$ make, that does't decide how many USD their pieces of paper are worth.

                    The UK government guarantees your bank account, but it only guarantees it in £. It doesn't guarantee that you will be able to buy the same amount of Oil/gold/whatever with it. That is the real value of an international currency.

                  2. P. Lee Silver badge

                    Re: Tulips ! @ YAAC

                    > If the government is broke or unable to honour all these notes then the value falls or at worst it becomes worthless

                    In ye olden times perhaps. Currency used to be backed by gold, then (Sterling) silver, now there's nothing. The government doesn't promise anything. Not only that, national debts are multiple times the value of the economy, so the currency is worthless anyway.

                    We just pretend everything is ok to put off the awful day when we can't avoid the fact that it isn't.

                    Then you can say, "Hello Weimar" and probably everything that came after it too.

      2. jonathanb Silver badge

        Re: Tulips !

        Probably most people didn't spend 2500 Dutch Florins a time on tulip bulbs. It was after all a massive amount of money in those days. They would have bought something like daffodil bulbs instead, or they would have decided not to bother with spring flowers in their gardens.

        Nevertheless, despite massive inflation in every other product since 1637, tulips are still considerably cheaper today than they were 376 years ago.

  4. DrXym Silver badge

    Rampant speculation

    Buying bitcoin would be fine if people intended to spend it. But they're not. It's a series of speculative bubbles by people hyping up the currency so they can exit and exchange their bitcoins back to real money and a profit.

    1. Moosh
      Paris Hilton

      Re: Rampant speculation

      That's the thing. Bitcoinseems almost seems to be designed for the bubble to burst. The goal of most anyone who is investing is to ramp up the price and then sell everything to get more real cash.

      1. Anonymous Coward
        Anonymous Coward

        Re: Rampant speculation

        "sell everything to get more real cash."

        and by real cash you mean the dollars and pounds that the central bankers have been printing $£Trilions of to give to banksters and russian gangsters, eh?

        1. Pascal Monett Silver badge

          Re: dollars and pounds that the central bankers have been printing $£Trilions of

          Yup. Those work in 99.9% of the stores that sell stuff.

          The fact that russian gangsters have some as well is just proof that it is good. They are professionals, after all. They won't go after something that has bad returns on investment.

          So call me when a russian mobster is hoarding Bitcoins - that's when I'll believe it has value.

    2. Flywheel Silver badge
      Pint

      Re: Rampant speculation

      I "invested" about £30 in bitcoin because I wanted a fast and easy way to buy stuff online (and perhaps locally) and today my wad is worth about £19. I'm not worried because over the next few days it'll go back up, but there again I didn't buy it as an investment. I reckon if people use it as a trading currency rather than a means of sticking on over on The Man it'll succeed.

      1. Tom 13

        Re: I reckon if people

        It would but that's the rub. I have yet to see a story or post where the prevailing subtext wasn't sticking it to the man. So long as that remains true it is either a speculative bubble or thugs using it for money laundering purposes.

  5. Anonymous Coward
    Anonymous Coward

    banking regulator: Don't come crying to us when someone steals it

    not like your money's really safe in a bank but hey, there's a difference called "banks' reputation" :)

    1. Spoddyhalfwit

      Re: banking regulator: Don't come crying to us when someone steals it

      The great thing about real banks is you can put your real money in them and be guaranteed to have lost money thanks to inflation. If you're lucky the bank will even charge you for the pleasure of losing money, or spending it.

      1. Anonymous Coward
        Anonymous Coward

        Re: banking regulator: Don't come crying to us when someone steals it

        Exactly.

        And for reasons not recently made widely clear, when a bank fouls up, governments mostly seem to think they are obliged to protect the institution rather than the investor, and that "protecting the institution" is more important than the effects (austerity etc) of the cost being passed on to the tax paying public (and others). Which other business sector runs government that way?

        1. fandom Silver badge

          Re: banking regulator: Don't come crying to us when someone steals it

          Their is no reason why governments should protect the investor, in fact they should be the first to get a haircut, up to 100%, when banks go tits-up.

          I think you may have meant "depositor"

          1. Anonymous Coward
            Anonymous Coward

            Re: banking regulator: Don't come crying to us when someone steals it

            "I think you may have meant "depositor""

            I think you may have hit the nail fairly and squarely on the head. Sorry. Thank you (genuinely) for the correction.

            I'll see if I can find a convenient rock to crawl back under,

  6. Richard Jukes

    Methinks this is the start of the bubble bursting.

  7. Ben Hodson

    It strikes me that you only really need to answer the following:

    1) Does the internet need a non-national e-currency that is devoid of transaction charges, bank fees and allows easy micropayments ?

    2) Do you think that BitCoin will be the VHS or the BetaMax ?

    If your answers are yes/VHS then it is massively undervalued given the limit on the number of bitcoins that will ever be released. If you answer is anything else then there a lot of people that will end up with a worthless computer file.

    Personally I LOVE the idea of a currency that is out of direct control of "the Man", I think the internet needs it and VHS/Betamax - I dont know !

    1. DragonLord

      alternately you'll end up with a high value bitcoin and a low value alternative with a much larger capacity working together so that you end up with bitcoin being the equivalent of notes and the other currency being the equivalent of coins. Then have banks/exchanges being able to exchange against the 2. The only problem I currently have with the system is that there's no expiry mechanism in bitcoin so every bitcoin lost is gone forever. This IMO is the biggest thing that makes bitcoin unworkable into the future. Which is also one of the reasons for inflation in physical currency. If there was some way to version the coins so that they could be upgraded to a newer version every couple of years and eventually the old bit coins would no longer be accepted except in certain locations (same as old notes and coins) then this would work as a truly international currency.

      1. d3rrial

        @ DragonLord

        There are already low value alternatives, like Litecoin for example.

        Why would you think tho, that bitcoin needs a low value equivalent? You know that bitcoin can be divided to up to 8 decimal places? You can have 0.00000001 bitcoin and this is still a valid amount. This is also not set in stone btw. if the developers see fit, they could implement lower minimal values. Currently there is just no need for those, tho.

        Also, what is wrong with Bitcoins being lost forever? This just increases the value of the currency. I think you have not understood bitcoin yet, and should do some thorough reading up on it. You will find some rather interesting aspects, that you have noted as missing, which are included, just not exactly as you said they should be. Versioning coins to not accept old bitcoins is stupid tho. There is no difference in the bitcoins from block 0 to the bitcoins from block 50.000 or whatever.

        1. Pascal Monett Silver badge

          Re: should do some thorough reading up on it

          I'll read up on it the day I have to use Bitcoins to fill my gas tank.

          It won't happen in my my lifetime, I'll wager.

  8. jb99

    Good luck even finding if I have any bitcoins, let alone stealing them!

    See brainwallet.org

    My private key doesn't exist anywhere so can't be stolen. It can be generated at any time though using an algorithm from a long passphrase stored only in my mind. So good luck telling that I have any, let alone stealing them!

    (And yes I know there are other risks while making transactions etc...)

  9. Anonymous Coward
    Anonymous Coward

    Others have mentioned this but the main issue I see with bitcoin is that quite a large percentage of it is in the hands of people who never intend on spending it. Ever. They're simply waiting for the right moment to dump it all back in and walk away with real money. More real money than they invested.

    Those like the Winklevoss twins who have made claims saying they own a large percentage of all bitcoins then subsequently use their profile to get endless "the only way is up" articles published and aired about bitcoins.

    If/When this happens those trying to use bitcoin as an actual currency, and those who got on board with the investment hype will really suffer. I'd be willing to bet there are other individuals or groups who own a significant percentage of the entire currently available bitcoin 'stock' who have kept schtum and are similarly buying their time.

    They will be dumped and sold in a scary amount at some point, and that'll be that.

    1. Mark .

      Note that most sellers who currently accept Bitcoin probably sell them as soon as possible anyway - so as far as effects on price are concerned, it makes no difference whether current hoarders start spending their Bitcoin, or start selling them (though the former does at least raise more awareness of Bitcoin and show it being used, I don't see it would be a difference in terms of effect on Bitcoin price).

      The inequality of Bitcoin distribution is a problem, but the only way out of that is from them to sell or spend - and it doesn't matter which, selling Bitcoin will do the same job of redistribution. It seems odd to complain both of people hoarding, and that the hoarders might sell...

  10. The Jase
    Trollface

    LOL

    Buttcoin... LOL

  11. phil dude
    Pint

    european and all that...

    I don't know if anyone remembers but the greek "hair cut" was nothing short of theft.

    I suspect it is one of the many reasons Bitcoin sprang into life, was the precipitous change in fortunes that can be caused by banks, without tanks....

    P.

  12. Vociferous

    My favorite...

    ...was the bitcoin exchange guy who absconded with all his clients bitcoins -- and then it turned out that none of the customers had any contact information beyond the exchange owners handle. Anonymity is a great thing... except when you give your money to Some Random Dude for safekeeping.

    Of course, since the exchanges are completely unregulated, I'm not even sure if he committed any crime by stealing the bitcoins. Or, before he disappeared, what kept him from gaming the exchange rates to line his pockets.

    It's the Wild West out there, and a large number of fools are learning that a fool and his money...

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