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State officials warn residents about the possible hazards of digital currency

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A mock Bitcoin is displayed on a table in an illustration picture taken in Berlin January 7, 2014. REUTERS/Pawel Kopczynski
A mock Bitcoin is displayed on a table in an illustration picture taken in Berlin January 7, 2014. REUTERS/Pawel Kopczynski

MADISON, Wis. (WSAU) -- State regulators are warning residents about the possible dangers of investing in new digital currencies.

A great number of variants of coins are on the market, most prominently Bitcoin, which is touted as a decentralized way of transferring funds. But its that lack of regulation that could be a problem according to George Althoff, spokesperson for the Department of Financial Institutions. "You could go to bed at night with a fair amount of bitcoin in your e-wallet, and wake up in the morning to find that it's gone. And in which case you'd have little to no recourse in trying to recover it."

Bitcoin users have long been the target of scams and cyber crime thanks to the lack of oversight in the marketplace, most recently with the liquidation and shutdown of the MTGOX trading market in Japan after the loss of over $480 million in bitcoins and customer assets

A number of digital programs to transfer funds are already in place, like Square, Google Wallet and Paypal. These work off existing credit card or bank accounts, and Althoff says those have been proven to be very safe. "Those are legitimate, very safe transactions, but it's the transactions with the virtual currency, which is again not backed by any government or asset, that could lead to problems." Bitcoins have also been tied to numerous criminal organizations like the Silk Road drug trading website which was shut down last year.

A number of federal and state agencies are already exploring the currencies as well. Althoff says the IRS has already ruled that trading Bitcoin is the same as trading stocks. "Certainly other federal regulatory agencies that could hold sway over virtual currencies are still looking at trying to determine what if any statutory authority they could hold over virtual currency."

In the end, Althoff says if you do want to invest in these currencies, you should do so by your own research and be ready to accept the risk going in.

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