Securities Word of the Week: Bitcoin Bitcoin is a virtual currency created in 2009 by “Satoshi Nakamoto,” an alias used by the anonymous creator or group of creators. Although there are many others, Bitcoin is currently the most widely used and accepted virtual currency. Vendors such as Amazon, Expedia, Overstock, and eGifter currently accept bitcoins as payment, with more companies joining each month. Unlike traditional currencies, Bitcoin exists only in digital ledgers—no physical coins are minted or otherwise issued. Additionally, Bitcoin is not backed by a central repository, such as the Federal Reserve. This means that there is no central authority guaranteeing the value of the currency. The only record of a user’s Bitcoin balance comes in the form of a digital “wallet.” A wallet is an electronic file representing the number and value of a holder’s bitcoins. If a wallet is deleted, corrupted, or otherwise rendered irretrievable, the holder of the wallet usually has no recourse to recoup any lost bitcoins. Bitcoin and other virtual currencies presently exist in a regulatory gray area. However, this past September, a Texas federal court ruled that a Ponzi scheme involving the purchase and sale of bitcoins constituted an investment contract subject to regulation by the SEC and other securities regulators. Just like foreign exchange scams, con artists may take advantage of the relative mystique associated with virtual currencies to attract victims. While Bitcoin and other virtual currencies may represent new financial opportunities, there have already been numerous recorded cases of fraud related to virtual currencies, not to mention several high-profile hacking incidents. Investors should exercise caution and do an extensive amount of research before investing with Bitcoin. For more tips and information about making sound investment decisions and protecting yourself from fraud, or to file a complaint, visit the Securities Division’s website, scag.gov/scsecurities, or call us at (803) 734-9916.
Posted on: Thu, 04 Dec 2014 22:25:06 +0000
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