The Bank of Thailand has issued a warning over the digital currency Bitcoin, which cannot be used to repay debts legally in this country despite its popularity worldwide.
The central bank says people should study such virtual units and their volatility risks. They face high fluctuations and have no connection with the real economies. Bitcoin holders risk losing money from rapid drops in value.
Bitcoin was introduced in 2008 by programmers under the name of Satoshi Nakamoto and has since gained traction with merchants around the world. The digital currency has no central issuing authority, and uses a public ledger to verify transactions. Others similar to Bitcoin are Litecoin, Peercoin and Namecoin.
The digital currencies can be traded for dollars, euros and other currencies on online exchanges, established by individuals or groups with exchange rates set. But since Bitcoin and other crypto-currencies exist as bits of software, they can be stolen if unauthorised access is made to the computers or servers connected to the Internet that store those files.
There also remains a protection risk to users as virtual currencies are not a recognised medium for payment under Thai law. They can disappear through theft or mismanagement.
“Transfer data is difficult to find as evidence if a user files a lawsuit. It’s different from a bank transfer or payment under public-sector supervision with a monitoring system,” the central bank said.
“Bitcoin and other electronic data units are not counted as money for legal payment. They do not have their own values. Values move along with demand of groups trading them with fast movement. Their value can be [zero] when no one needs them,” the central bank said.
Such electronic data units are held on speculation, given their fast changes in value, traded on exchanges for real money, and used for purchase of products and services.
However, last month Mt Gox, once the world’s largest Bitcoin exchange, filed for bankruptcy in Japan. The company believed there was a high possibility that Bitcoins had been stolen. The currency’s value dropped sharply.
The turmoil left investors and Bitcoin holders facing catastrophic losses, while central banks in several countries issued warnings to people about the risks of electronic data units.