Consumer, Consumer Threat Notices

Bitcoin Given Official Currency Status by Federal Judge

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By on Aug 12, 2013

You can’t carry it in your wallet, or store it in a piggy bank, but Bitcoin is just as much a form of money as any physical bill or coin, so says the U.S. government. Just this week, a federal judge in Texas issued a ruling that declared Bitcoin—a digital currency with previously little legal oversight—is now an official currency.

Bitcoins are generated through a cryptographic process known as “mining,” where new coins are gradually “mined” into being by completing a set of tasks or following a set of rules, on a website. Once in possession of a Bitcoin, a person can use it to trade with another person or group who will accept it as payment for goods and services, or exchange it for other forms of money such as a U.S. dollar.

Issues with Bitcoin came to light last year when a group called Bitcoin Savings and Trust (BTCST), a virtual hedge fund dealing exclusively in Bitcoin, came under suspicion of committing fraud and was subsequently forced to shut down. The SEC pressed charges against the fund’s founder, Trendon Shavers, with running a Ponzi scheme worth $4.5 million.

As a result of the judge’s ruling, it was pointed out that since Bitcoin is used as a means of paying for goods and services and can be exchanged for other legitimate forms of currency (e.g. U.S. dollars, Euros, and Yen), it is therefore a recognized form of money.

What does the ruling mean?

The decision solidifies the ability for regulatory groups such as the Securities and Exchanges Commission (SEC) to oversee online Bitcoin transactions. And though it doesn’t directly give the federal government more control over the currency, it will hopefully help to give more protection to those who use it online.

Up until now, Bitcoin was a completely anonymous form of virtual currency often used to buy products online. Because of it’s promise of anonymity, it has attracted criminals looking to launder money, users seeking to purchase drugs, and even pedophiles chasing after child pornography. As the currency was untraceable, so were the infractions in such cases.

And, thanks in large part to Bitcoin’s shady past and promising future, the virtual currency has continued to attract dishonest elements on the Internet. Phishing scams, which trick users into giving up personal and banking information by appearing to originate from a legitimate web source, continue to make an appearance along with hackers chasing after easy access to valuable currency.

Is it now safer to use Bitcoin?

Bitcoin may be on the radar with the law, but the ruling doesn’t actually grant the U.S. federal government additional authority over directing trades through Bitcoin. Mostly, it has opened a door for the SEC to prosecute schemes and scams using Bitcoin as a medium—it’s not a direct regulation of trades using the currency.

Also noteworthy, some of the anonymous elements so popular with Bitcoin are still present. Users on Mt. Gox, currently the largest Bitcoin exchange online, can remain anonymous only if they trade exclusively in Bitcoins. If users choose to transfer the currency into cash, be it dollars or Yen, they’ll have to provide a form of identification.

For Android users, even more attention to detail may be required when it comes to Bitcoin use. Apps such as Bitcoin Wallet and Mycelium Wallet (that are Android based) are open to a number of cyber abuses that could rob you of your hard-mined Bitcoin. App developers are said to be fixing the issue, however, code updates only fix half the problem. To protect yourself, you (the Bitcoin account holder) should create an entirely new Bitcoin address, which you will then need to update for all vendors using your old information.

Should you choose to use a Bitcoin sometime in the future, here are some tips to keep in mind to help protect yourself:

  • Know whom you’re dealing with — Anonymity may be nice, but it isn’t worth risking your hard-earned money over. Research those who you’re dealing in Bitcoins with before making any transactions.
  • Stick to popular exchanges — There’s strength in numbers, and the same goes for financial transactions. If you need to use a Bitcoin exchange to change out cash, stick with the major sites like Mt. Gox or BitStamp.
  • Remember Bitcoin value isn’t stable — Bitcoin as a currency is a notoriously unstable one. Just like in the real market, the slightest change in the news can send the value of the currency sky high, or lower than dinosaur bones. That risk is especially high when, as we’ve noted before, hackers are involved.
  • Don’t give your banking information to strangers — Always be cautious of who is asking for your valuable information, especially when it’s an online transaction. Rule of thumb: don’t do anything with Bitcoin that you wouldn’t do with your savings account.

Finally, keep up to date with the latest news and vulnerabilities concerning Bitcoin, malware and other dangers on the Internet that could be giving you a run for your money. You can start by following on Twitter @McAfee or connect on Facebook.

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