PRESS RELEASE
On the risks associated with the use of virtual currency

Driven by the interest of media and the general public regarding the purchase, possession or possible trading of virtual currencies, such as BITCOIN, the Bank of Albania would like to bring to the attention of the public the fact that the legal and regulatory framework in force does not stipulate the performance of such activity in Albania.

The Bank of Albania has not licensed any financial entity, whose activity includes also virtual currencies. Consequently, the companies involved in this activity in the Republic of Albania are not licensed, and therefore their activity is not subject to the regulatory and supervisory framework of the Bank of Albania.

As a result, given the absence of rules that would discipline the financial activity and their supervision, the activity of these entities is characterized by a considerable risk and uncertainty, and does not guarantee the protection of customers against investment loss. From this point of view, the involvement in this kind of activity remains an individual responsibility of the person that engages in it.

All relevant, national and international actors, including the European Banking Authority and the European Central bank are intensively working to asses all the issues related to virtual currencies aiming to regulate and adequately supervise it.

At the end of 2013, the European Banking Authority, as a competent and independent authority for ensuring the prudent regulation and oversight of the European banking sector, aiming to maintain financial stability, published the¹ risks with which the consumers may be faced when purchasing, keeping or trading virtual currencies.

Likewise, the European Central Bank has paid attention to this issue and has highlighted in its publications² that virtual currencies and electronic money should never be considered as equal. Whilst the latter is a legally regulated and supervised activity, in Albania, the virtual currency is an activity completely out of the authorities’ sight and control.

The Bank of Albania brings to the attention of the Albanian public the need for a better awareness on the risks associated with this kind of activity. For this purpose, below are listed the most important risks:

Firstly, the value of virtual currencies traded or invested in the respective exchange platforms is not guaranteed and is quite volatile. Currencies’ value can be manipulated, causing the investor to face a significant loss beyond his control. Also there is a great possibility, that due to the counterparty liquidity shortfall, the virtual currency might never convert back to conventional currency (fiat).

Secondly, the exchangers of virtual currencies are unknown, unregulated or companies registered in a particular jurisdiction. Consequently, anyone who invests their money in virtual currency exchanged by these companies will face the risk of loss as a result of different issues they may exhibit.

Thirdly, as long as the platforms are only virtual and not encrypted, they are quite exposed to cyber-attacks. Under these conditions, the investment becomes unsafe and it can be attacked at any given time by hackers and lose forever, without any recoverability. This would be the case, as long as there is no coverage or protection possibility, such as the deposit insurance fund in banks.

Fourthly, as long as the investment in these currencies is annonymous, it can be used by certain individuals to perform illegal activities such as money laundering, terrorism financing, or smuggling of goods.

Fifthly, at the request of the virtual currency scheme, people need to identify themselves on electronic platforms, through scanning of their passports, retina, or fingerprints. The application of these forms of identification by the software (IT software) is not subject to the laws and regulations for personal data protection or security standards. Consequently, there is no guarantee that these credentials will be safely administered to avoid their theft or misuse.

For all of the reasons set out above, we appeal the Albanian public to be cautious and responsible when administering the savings or liquidity they own. It should direct the investments towards financial products and instruments provided by institutions that are licensed and supervised by the Bank of Albania and the Financial Supervisory Authority.

The Bank of Albania, welcoming the great transformation that comes from information technology, is committed to continuously inform the Albanian public on the novelties of virtual currencies, as well as the regulation and management of the risks associated with this product.

¹ https://www.eba.europa.eu/documents/10180/598344/EBA%20Warning%20on%20Virtual%20Currencies.pdf

² http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf