State: Be Careful With Bitcoin—It’s Risky
The Office of Consumer Affairs is trying to persuade people to steer clear of the digital currency.
As bitcoin businesses start to blossom in Boston, hoping to bring the digital currency into the mainstream market, despite recent setbacks, the state is warning consumers to keep their monetary exchanges strictly to cash and credit card, and avoid the “risk” of the volatile new trend.
“[We advise] consumers who may consider purchasing the digital or virtual currency bitcoin to proceed with caution because of the high-financial risks involved,” officials from the state’s Office of Consumer Affairs and Business Regulations said in a notice posted to their website on Tuesday. “Before purchasing bitcoins either online or through a kiosk, consumers are strongly advised to consider the risks.”
Bitcoin is an open-source form of online currency comprised of complex algorithms that can be purchased and exchanged by people like any other money, but because it’s not regulated by any bank or institution its worth fluctuates rapidly.
The consumer warning from the state, which provided a sort of guide to explain what bitcoin is, was handed down just one month after one of the largest suppliers of the digital currency in the world, Mt. Gox, had millions of dollars worth of bitcoin stolen from them overnight. Mt. Gox was subject to some sort of security breach, and more than 744,408 bitcoin went missing. The theft led to the digital coin bank’s bankruptcy and closure almost immediately.
The message from the state may create some difficulties with startups trying to corner the bitcoin market. In February, Boston became the home to one of the nation’s first bitcoin ATM machines, at South Station, when LibertyTeller opened its bitcoin vault to buyers in a public setting.
The state is worried about what the business offers. “While this operation closely resembles an ATM, the kiosk performs quite differently. It does not provide cash, but instead allows consumers to load bitcoins onto a virtual wallet either accessed by an app downloaded onto a smartphone or through a code provided on a piece of paper that is unique to each consumer,” they said. “If you can’t afford to lose the money you have, you should not buy bitcoins.”
The city has also become home to Circle, a business that is trying to strengthen the ties between bitcoin users and companies that accept the digital currency.
In a recent interview with Boston, Circle founder Jeremy Allaire said the news of the Mt. Gox collapse was good for smaller, more stable ventures such as his own, and is a sign that the unreliable sources for bitcoin are slowly being weeded out.
“While negative news tends to grab the headlines, these developments will be quickly eclipsed by industry innovation and the radical improvements digital currency provides for consumers and businesses around the world,” he told us.
As the Mt. Gox news came out, he said he wasn’t afraid of it warping the image of the online money circuit. But the state’s own push to put a microscope over the bitcoin business model may create additional unforeseen roadblocks that perhaps he didn’t anticipate. “It’s an experimental concept,” the state office said.