Lloyds and Virgin ban customers from buying Bitcoins

Bitcoin ban

Lloyds Banking Group (LBG) and Virgin Money have banned their customers from buying Bitcoins with their credit cards.

Both banks fear that customers could run up large debts by investing in Bitcoins and other so-called crypto-currencies because of recent sharp falls in their value.

Lead

They are following the lead of several American financial institutions who recently took the same step.

The list includes some of the top financial firms in the US: Bank of America, Citigroup, JP Morgan, Capital One and Discover.

Review

A spokesperson for Virgin Money said: “Following a review of our policies, I can confirm customers will no longer be able to use their Virgin Money credit card to purchase crypto-currencies.”

A Lloyds spokeswoman said: “We continually review our products and procedures and this is part of that.”

8 million

The Lloyds ban applies to credit cards issued by Lloyds, Halifax, Bank Of Scotland and MBNA which it bought recently from Bank Of America.  There is no ban on using a debit card.

But Britain’s other high street banks have not joined in the ban.  UK Finance, the banking trade association, has issued no guidance and Barclays said: “We take precautions to assess affordability before extending credit, flag and prevent any suspicious transactions and also closely monitor credit risk.”

What is a Bitcoin?

The first thing to understand is that it is not a currency backed by any single state – like the pound sterling or the American dollar.

It is what is called a crypto-currency and although there are some specialist ATMs which issue them it is best to think of them as virtual tokens which are traded online.

Pizzas

It first appeared nine years ago and took a long time to become accepted as being able to be swapped for ‘real world’ cash. In one early transaction it took 10,000 bitcoins to buy two pizzas!

They are created through a complex system known as ‘mining’ and then monitored by a world-wide computer network.  Around 3,600 new bitcoins are released every day and there are about 16.5 million now in circulation.

Buying and selling

Like all currencies it is worth whatever people are prepared to pay for it and it is possible to both  make and lose fortunes.

The value of the bitcoin has been massively volatile during the last year.  At the start of 2017 it was trading at below $1,000, but by November it had soared to an incredible record high of $19,000 for a single coin.

Tumble

But having hit the heights it then began to tumble, falling by 10.86% in a single day. One bitcoin is now worth $7,297.

Bitcoin wallets, which store the currency, work like anonymous private bank accounts.  Governments have become concerned that the anonymity has allowed criminals and terrorists to move cash around and make illegal purchases.