The virtual or digital money can be used like traditional money—to purchase goods or services, usually online, or it can be exchanged for other virtual or traditional currencies such as the U.S. dollar.
“As with any new product, virtual currencies too have the potential to attract both increased fraud and high-risk investment opportunities,” said US government in a caution to people.
If you’re thinking about investing in virtual currencies, here are five important things to consider from USA.gov:
- High risk of fraud – Scammers target virtual currency investors with promises of high returns, fake opportunities, and other schemes. If fraud or theft takes place, you have limited recovery options.
- Unregulated – There are no laws in place to protect investors. The currencies, issuers, and exchanges are not regulated by any government. In addition, the funds are not insured from loss if the exchange shuts down or if the value plummets.
- Fluctuating value – The value of virtual currencies can change dramatically—even in just one day.
- Security concerns – Virtual currency exchanges may stop operating or permanently shut down as a result of fraud, technical glitches, hackers, or malware. Virtual currencies also may be stolen by hackers.
- IRS treats virtual currencies as property – Virtual currencies are considered property for federal tax purposes. As a result, general tax principles that apply to property transactions apply to transactions using virtual currency.
If you encounter a problem with virtual currency products and services, you can submit a complaint to the Consumer Financial Protection Bureau (CFPB). And you can report a problem concerning virtual currency investments to the Securities and Exchange Commission (SEC), said a statement.