The Ministry of Finance, the Ministry of Energy, Commerce, Industry and Tourism and the Central Bank of Cyprus wish to draw the attention of the public to the risks associated with the purchase, holding or trading of virtual currencies (such as bitcoin), which are not legal tender nor financial instruments.
Virtual currencies are non-regulated digital products which are not issued by a central bank. They can only be used as a medium of exchange for products in a limited trading network.
Decentralised virtual currencies (such as bitcoin) are produced by numerical algorithms by anyone who has the skills to do so and have value only because the owners or users add value to them. The production is done anonymously and therefore cannot be regulated by any Authority.
The risks associated with the possession or use of virtual currencies are:
i. You may lose your money in the exchange platform
Virtual currencies can be bought directly from an existing owner or through an exchange platform. Exchange platforms can collapse, causing consumers to permanently lose significant amounts of money "maintained" on these platforms. This has indeed happened recently.
It is important to note that the exchange platforms are not banks. If an exchange platform loses money or breaks down, there is no specific legal protection.
ii. The money can be stolen from your digital wallet
When you purchase a virtual currency, this is stored in a "digital wallet" in a computer or a smart phone. Access to digital wallets is provided with codes. However, digital wallets are not completely safe against hackers or theft or loss or destruction of the virtual currency’s storage device.
iii. The value of the virtual currency can change quickly and may even be nullified
The value of virtual currencies has significant and abrupt fluctuations. Therefore, it can rise or fall suddenly or even be nullified.
iv. Transactions in virtual currencies entail an increased risk of abuse for criminal activities, including money laundering
The public is encouraged to examine all aspects of the use of virtual currencies, and understand the risks involved.