Bitcoin, Litecoin, Dogecoin, Darkcoin, Stellar – these are just some of the digital currencies people are using to make online and even offline payments. There are even ATM that allow people to withdraw cash directly from their Bitcoin wallets, and some large companies like Dish Network Corp. and Dell Inc. have started accepting Bitcoin payments.

Despite the ease of use and other benefits provided by digital money, the idea is still plagued with controversy thanks to illegal sites like the now-defunct Silk Road and several high profile Bitcoin exchange heists. There are also doubts as to how secure these digital currencies are.

The Consumer Financial Protection Bureau (CFPB), an independent agency of the United States government responsible for protecting consumers, has now issued a six-page warning regarding the use of said digital currencies. To be clear, the agency is not dissuading anyone from using them, but it wants to inform people about the risks using them could pose for consumers.

Upfront, the CFPB enumerated four reasons why Bitcoins and other altcoins are risky. There’s the risk of your wallet being hacked; fewer protections compared to using banks or other regulated financial services; in some cases it cost more to use; and there are lots of scammers to worry about.

The report cites several ‘real’ accounts of people being duped by scammers, the hassles of using a Bitcoin ATM, and how not all exchange markets can be trusted just because they’re registered with the Financial Crimes Enforcement Network. Also, losing your security keys would mean losing all your funds.

“Virtual currencies may have potential benefits, but consumers need to be cautious and they need to be asking the right questions,” CFPB Director Richard Cordray said in a statement. “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”

You can read the entire report here.

Another bump in the road?

The media has hyped the ease of use of Bitcoin and other digital currencies, but is it really that easy to use in everyday scenarios? First off, if you’re not that good with computers and you have no idea what a QR code is, Bitcoin may not be the best fit for you.

Most of us have used an ATM. They’re dead simple to use, you just insert your card, punch in your PIN, then check your balance, take out some money or do whatever else it is you need to do. You even can get a receipt if you choose :-)

But now there are numerous Bitcoin ATMs scattered throughout the world and if you think using one is going to be as simple as using a regular ATM, well, it’s not.

Grant Ammons, a blogger and software creator, experienced using one of Robocoin Technologies LLC’s Bitcoin ATMs earlier this year at South by Southwest. Like everyone else, he thought using it was easy as pie. Turns out the opposite is true. He claims it can take so much time, almost an hour, because of all the approval and security measures in place.  Yes, the security measures may assure people that their funds are secured and cannot be accessed by anyone else, but providing personal data like a scan of your palm, your email address, phone number, and your driver’s license will make you question why this machine needs all these data when Bitcoin is supposedly an anonymous currency.

Also, it should be pointed out that Bitcoin ATMs have a different exchange rate to what you can find on the Internet or Bitcoin exchange markets. They often charge a premium, so you might be getting less cash when you use these machines.

photo credit: DFChurch via photopin cc