Idaho Finance Department warns of risks using virtual currency

Idaho Finance Department warns of risks using virtual currency »Play Video
Bitcoin buttons are displayed at the Inside Bitcoins conference in Berlin on Wednesday, Feb. 12, 2014.
BOISE, Idaho (KBOI) -- Virtual currency such as Bitcoin is growing in both popularity and controversy.

And just this week, the Idaho Department of Finance issued an investors warning about digital money like Bitcoin.

"Understand the risks, understand the fluctuation in value, understand the fact that there is no government backing, no federal deposit insurance," said Gavin Gee, the state finance department's director. "There are a number of risks associated with this currency."

Bitcoin's value can fluctuate as much as 20 percent in one day.

And because it is a shadowy creature of the Internet, it can be scooped up by hackers.

In fact, the largest Bitcoin exchange in the world -- Mt. Gox in Tokyo -- recently failed after it claimed $350 million in digitial currency was stolen in a single cyber attack.

Bitcoin is not like your ordinary currency that you can keep in your wallet. You actually store Bitcoin, which is sort of an electronic code, in your smart phone, computer or in the cloud.

Much of its allure is based on the ability to quickly and anonymously transfer money around the world with no fees -- and that appeals to the criminal element.

"While the Bitcoin system tracks very carefully every Bitcoin exchange made, it does not track who was behind that transaction," said Gee.

Bitcoin and other virtual currencies may be the wave of the future.

But investors beware, you could get soaked.