Federal Reserve Bank of San Francisco has recently published an article targeted at the community banks operating under its jurisdiction. The Director, Wallace Young has explained about bitcoin and cryptocurrencies in the article which also talks about various risks involved in dealing with bitcoin based customers and businesses.
The article gives an overview of the history of digital currencies starting from the time bitcoin was first launched in the year 2009 to the emergence of other cryptocurrencies like Litecoin, Dogecoin peer coin and a lot more. He goes on to explain the specific usage of certain coins like Dopecoin and Darkcoin.
While accepting the increasing popularity of bitcoin, virtual currencies and services associated with it (bitcoin exchanges, trading platforms, microlending platforms etc.), he cautions the community banks about providing banking services to these entities as they present unique risks and challenges.
The risks discussed by Wallace Young includes compliance risk, reputational risks, credit risk and operational risk. According to Young’s article, the compliance risks is part of legal risk similar to the ones presented by traditional money transmitters. A certain degree of anonymity associated with virtual currencies makes it hard for the banks to understand whether there user of virtual currency