Is bitcoin a safe means to transact money? originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Let me first say that I’m speaking as myself and not on behalf of the Federal Reserve System. Also, that my expertise is in the world of physical cash, so I’m not an expert in bitcoin.
There are a variety of ways to think about the relative safety of different means of payment. When you use a credit or debit card, for example, there are laws and regulations that specify the rights and responsibilities of each party to the transaction. So, if someone gets your credit card information and uses it fraudulently, your liability is limited by the legal framework of the transaction. Your bank accounts are protected by deposit insurance. And you have options for recourse if you don’t receive the goods or services in return for many types of payment.
Bitcoin was designed to operate independently of any regulatory structure to facilitate anonymous transactions both locally and across international borders. These features make it attractive to some people for certain types of payment, particularly international exchanges. At the same time, because it operates outside the mainstream payments’ legal and regulatory structure, transactions made using bitcoin do not have the same consumer protections that are built into many other types of payments.
When considering the safety of any payment, I think it’s important for consumers to understand the rules that govern that payment to avoid disappointment if something goes wrong. I think there is sometimes a tendency to focus on the convenience of certain payments types, without fully considering the issues, risks, and alternatives to any particular type of payment.