Oct. 6, 2014 – Virtual currency is gaining in popularity and used to buy and sell virtually everything, but trading in digital money is risky business, a former University of Houston Law Center professor advised alumni in a consumer law seminar Friday.
It also poses a number of legal questions as to whether existing criminal, tax, banking, and consumer protection laws can be applied to the new currency system.
Julie Anderson Hill, who now teaches banking and commercial law at the University of Alabama School of Law, traced the history of virtual currency, or bitcoin, as a payment system for online games. “It was confusing for people who didn’t realize there was a difference between online life and real life,” she joked.
The bitcoin payment system eliminates two entities in the normal process of conducting business, she explained. Instead of one person writing a check from his or her bank and giving it to another person who cashes it at his or her bank which then retrieves payment from the first bank, transactions are conducted person-to-person. A system tracks transactions and ensures the same bitcoins aren’t spent twice.
But the virtual currency system is open to theft and fraud, she warned. It is not insured by the FDIC or regulated by the Federal Reserve and, unlike credit cards, there is no mechanism for reversing a transaction unless the seller agrees, and chargebacks are impossible.
Federal agencies take a dim view of the growing system. The SEC has advised that “investments related to bitcoin may have heightened risk of fraud;” scammers may target bitcoin users; and recovery options are limited. The U.S. Commodity Futures Trading Commission called it a “shadow currency” and “potential house of cards.”
“Perhaps you’ve decided by now that it is a rather risky investment,” Hill said. She conceded, however, that bitcoin can be and efficient low-cost payment option.
Hill was one of seven speakers at the free CLE program, Practicing Consumer Law, presented by the UH Law Center as part of an occasional series open to all alumni.
Other subjects covered in the four-hour credit program included construction litigation, landlord/tenant issues, justice court, insurance, debt collection, and DPTA/Arbitration.
Check here for future CLE programs.