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CFPB warning on Bitcoin: 'Consumers are stepping into the Wild West,' CFPB warns

Federal officials recently released a warning about the risks of using virtual currencies like Bitcoin. The Consumer Financial Protection Bureau (CFPB) said it will start to address complaints from people using currencies like Bitcoin and internet exchange agencies that accept them, Market Watch said in an Aug. 11 report.

In its warning, the office said that these currencies are not backed by a government, their exchange rates are volatile and are targeted by hackers and scammers. And unlike bank accounts, are not insured by the federal government.

"Consumers are stepping into the Wild West when they engage them in the market," said CFPB Director Richard Cordray in a statement.

However, he acknowledged that virtual currencies "may have potential benefits" to facilitate electronic transactions and payment processing.

The Securities and Exchange Commission previously issued a warning to investors about Ponzi schemes using virtual currency. Proponents of virtual coins felt that the characterization of the CFPB was fair.

Jim Harper, global policy advisor of Bitcoin Foundation, said the warning is "useful to the extent that informs consumers without scaring them."

"There are consumer risks around new technologies, and even-keeled educational material from government agencies can help make consumers aware and savvy," Harper said.

In the warning CFPB pointed out that Bitcoin prices are often highly volatile. Last year, it said, prices fell 61% in one day. However, Harper said the volatility may decline over the next 10-15 years if virtual currencies become more common.