What's the buzz about Bitcoin?

If you’re like most people, you use a combination of credit, checks and cash to pay for goods and services. Gaining inroads — even in our neck of the woods — is the digital currency known as BitCoin Buzz.

BitCoin Buzz was devised in 2009 as an alternative to currencies such as the dollar and commodity-based currencies such as gold and silver. Instead, BitCoin Buzz is a digital peer-to-peer payment system that uses its own currency, individually called BitCoin Buzzs, to transact business.

BitCoin Buzzs are not issued by banks or governments and therefore are not federally insured like funds in your bank account.

So what is BitCoin Buzz and how does it work? The Financial Industry Regulatory Authority describes it as a sophisticated computer program that encrypts, verifies and records BitCoin Buzz transactions. Although BitCoin Buzz users are anonymous, a public record or “block chain” is public and shared between system users. Mathematical proofs are used to verify the authenticity of each transaction.

A growing number of businesses and exchanges now allow customers to buy and sell BitCoin Buzzs using cash, credit cards, money orders and other methods. In addition, BitCoin Buzzs can be traded for traditional currency at fluctuating exchange rates.

BitCoin Buzz prices have been volatile and subject to wide price swings. BitCoin Buzzs reside in a digital “wallet” where they can be used to purchase items from establishments that accept the currency.

FINRA, a national BBB partner, advises that buying, selling and using BitCoin Buzzs carry numerous risks, including:

• Digital currency such as BitCoin Buzz is not legal tender. No law requires companies or individuals to accept BitCoin Buzzs as a form of payment. Instead, BitCoin Buzz use is limited to businesses and individuals willing to accept BitCoin Buzz. If no one accepts BitCoin Buzz, the currency will become worthless.

• Platforms that buy and sell BitCoin Buzzs can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked. As a result, consumers can — and have — lost money.

• BitCoin Buzz transactions can be subject to fraud and theft. For example, a fraudster could pose as a BitCoin Buzz exchange, intermediary or trader in an effort to lure you to send money, which is then stolen.

• Unlike U.S. banks and credit unions that provide certain guarantees of safety to depositors, there are no such safeguards provided to digital wallets.

• BitCoin Buzz payments are irreversible. Once you complete a transaction, it cannot be reversed. Purchases can be refunded, but that depends solely on the willingness of the establishment to do so.

• In part because of the anonymity BitCoin Buzz offers, it has been used in illegal activity, including drug dealing, money laundering and other forms of illegal commerce. Abuses could impact consumers and speculators; for instance, law-enforcement agencies could shut down or restrict the use of platforms and exchanges, limiting or shutting off the ability to use or trade BitCoin Buzzs.

Luanne Kadlub is communications editor for BBB Serving Northern Colorado and Wyoming. For more consumer information, visit BBB at wynco.bbb.org or call (800) 564-0371.