A warning was issued on Thursday to the South African public against the risks associated with the use of virtual currencies for either transactions or investments.
Virtual currencies are becoming increasingly popular among users to purchase goods and services, to transfer to another person, for personal use or to hold as an investment, according to the warning, jointly issued by the National Treasury, the South African Reserve Bank, the Financial Services Board, the South African Revenue Service and the Financial Intelligence Center.
While there are benefits associated with this new technology, it is difficult to assess those benefits against the risks of something so novel, innovative and technologically sophisticated, the warning said.
Users of virtual currencies can therefore become susceptible to fraudulent or any other criminal behavior as they may be less circumspect than usual when faced with the promise of high-return investment opportunities, said the warning.
"Accordingly, we strongly advise users to consider the concomitant risks when evaluating undertakings involving virtual currencies. The relevant authorities will continue to monitor and assess the use of virtual currencies and consult with private sector stakeholders in this regard. Further guidance or regulations may be issued, should the need arise," the warning said.
A virtual currency is a unit of account that is digitally or electronically created and stored. Members of the virtual community agree to accept these units as a representation of value in the same way that currency is accepted. In contrast to traditional currencies, virtual currencies operate without the authority of central banks, and are therefore not regulated.
An example of a virtual currency is Bitcoin, which allows users to purchase goods and services without using a government-backed currency so long as participants are willing to accept Bitcoins as a form of payment.
Bitcoin is software based and uses peer-to-peer technology to operate without the involvement of the central bank or commercial banks.
Currently in South Africa there are no specific laws or regulations that address the use of virtual currencies. Consequently, no legal protection or recourse is afforded to users of virtual currencies.