Trading
Bitcoins could bleed you dry, the European Union’s
top banking regulator said as it weighs whether to regulate virtual currencies.
Thefts
from digital wallets have exceeded $1 million in some cases and traders aren’t
protected against losses if their virtual exchange collapses, the European
Banking Authority said on 13 December in a report warning consumers about the
risks of cybermoney.
Virtual
currencies such as Bitcoin have come under increased
scrutiny from regulators and prosecutors around the globe. China’s central bank
barred financial institutions from handling Bitcoin
transactions last week and German police arrested two suspects in a fraud probe
into illegally generated Bitcoins worth 700,000 euros
($963,000).
“The
technology is still relatively immature and lacks the infrastructure,
regulation and understanding of the risks that are taken for granted in
conventional financial systems,” Matt Rees, assistant director at Ernst &
Young LLP, said in an e-mail. “It is not surprising then that thefts, frauds
and other deceptions are currently commonplace.”
Since
Bitcoins exist as software, the virtual currency
isn’t controlled by any government or central bank. The digital money emerged
in 2008, designed by a programmer or group of programmers going under the name
of Satoshi Nakamoto, whose real identity remains
unknown.
Bitcoins
are being used to pay for everything from Gummi bears
to digital cameras on the Web, with more than 12 million in circulation,
according to Bitcoin charts, a website that tracks
the online money’s activity.
The
virtual currency gained credibility last month after law enforcement and
securities agencies said in U.S. Senate hearings that it could be a legitimate
means of exchange. The price of Bitcoins topped
$1,000 as speculators anticipated broader use of digital money.
The
Rise of Bitcoin
The
price has since dropped to about $866 on Bitstamp, an
online exchange based in Slovenia. It would cost around $10.5 billion to buy
all the Bitcoins in existence, according to Bitstamp.
People
holding virtual currencies may be subject to value-added or capital gains
taxes, the EBA said.
The
government of Norway, Scandinavia’s richest nation, said it would treat Bitcoins as an asset and levy capital gains tax on them.
For
virtual currencies to be regulated in the EU, the EBA would have to get
approval from the European Commission, the 28-nation bloc’s executive arm.
The
U.S. Treasury Department’s Financial Crimes Enforcement Network has said that Bitcoin businesses may be considered money transmitters for
the purpose of complying with money-laundering laws. State agencies typically
license such businesses.