EU leaves bitcoin owners high and dry
People using bitcoins are on their own when it comes to losses, the European Union's banking watchdog said yesterday in a formal warning to consumers on the risks of using unregulated online currencies.
The European Banking Authority (EBA) said there was no protection or compensation for people whose "digital wallets" are hacked, transfers of virtual money that went wrong or platform closures.
The warning follows similar announcements from the Bank of France and the People's Bank of China.
The EBA stopped short of telling consumers not to use online currency markets but said if they ended up out of pocket there would be no safety net, unlike the compensation given to deposit holders when a mainstream European Union bank goes bust.
"Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business," the EBA said.
Bitcoin is not backed by any central bank or government, or by physical assets. Its value depends on people's confidence in the currency.
It has been gaining acceptance by the general public and investment community but has yet to become an accepted form of payment on websites of major retailers such as Amazon.
Bitcoins were also dealt a blow in Norway, with the government of Scandinavia's richest nation saying the virtual currency does not qualify as real money.
"Bitcoins don't fall under the usual definition of money or currency," said Hans Christian Holte, Norway's director general of taxation. "We've done some assessments on what's the right and sound way to handle this in the tax system."
Norway will instead treat bitcoins as an asset and charge a capital gains tax. In August, Germany said it would impose a levy on the virtual currency.
Paul Ehling, an associate professor at the BI Norwegian Business School, said the government's definition of money may be too narrow.
"Currency is any agreed upon means of exchanges of goods and services, so you could have some small stones, as used in history, and if it's accepted by a sufficiently large population, then that's enough," Ehling said.