Illustration of Bitcoin..
(photo credit: REUTERS)
The Bank of Israel warned the public on Wednesday about the risks of bitcoin and other virtual currencies, stressing that they do not constitute legal tender.
Bitcoin, an online currency created in 2009, has become the best known of several forms of virtual money. Its value has been extremely volatile. From a price of $15 at the start of 2013, the currency’s value rose to more than $1,000 before losing half its value and rebounding. As of Wednesday, it was worth $624.
There are several risks associated with virtual currencies, according to BoI. For one, because they are not backed by a central bank or government, they are not legal tender, meaning nobody has to accept them as a form of payment.
Because there is no financial oversight, bitcoin can be used for illicit activities such as money laundering and funding terrorism. The ability to transfer it anonymously means that financial institutions may have trouble complying with regulations and assessing the currency’s risks.
People unfamiliar with the still-developing marketplaces for the currencies are susceptible to fraud and deceit, the bank continued.
BoI and a multitude of oversight agencies from the Finance Ministry will continue to monitor virtual currencies’ macroeconomic effects, legal standing, regulation, money laundering and terrorist financing risks, taxation and consumer protection.
The US, Canada and EU have published similar warnings.
The Bitcoin Association of Israel welcomed the bank’s efforts, saying it was important to understand the risks associated with new technology. However, it argued that cash carries many of the same risks and that other problems could be overcome.
“We should remember that alongside the risk there is enormous potential for bitcoin, such as personal empowerment, economic efficiency, and business opportunities for Israeli start-ups,” the group said. “We should not give up on all it has to offer because of the current challenges.”
The association will hold a convention in Tel Aviv at the end of the month to promote the use of the currency
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