Launched in 2009 as the invention of a mysterious computer guru who goes by the pseudonym Satoshi Nakamoto, bitcoins can be exchanged online for real money or used to buy goods and services on the internet.
It has gained popularity in recent weeks after US regulators, including Federal Reserve Chairman Ben Bernanke, took a more positive view of the currency than many analysts had expected at a congressional hearing last month.
But the Bank of France is sceptical about the currency, and underlined that the “highly speculative” currency poses a “certain financial risk” to users.
“Even if the high volatility of the bitcoin is of possible interest for individual or professional speculators, they should be aware of the risks they are taking,” the bank said.
Bitcoin broke above $1,000 per unit last week, quintupling in a month, according to Mt.Gox exchange which manages trading in the currency.
Beyond its volatility, the bank also warned that the currency is not backed up by any real economic activity.
In addition, there are no official security guarantees for the electronic safes which store the virtual currency, making the user vulnerable to cyber attacks.
Furthermore, the convertibility of bitcoin is not ensured and an investor could be unable to regain his investment.
The central bank noted that if a currency is to be used as a mode of payment, it should meet rules against money laundering, and its security platform should be monitored by the Bank of France.
Nevertheless, the bank has no oversight of Bitcoin, and urged instead for action to prevent the virtual currency from being used in illegal transactions.
Bitcoin recently made headlines when the US Federal Bureau of Investigation closed the Silk Road website where illegal drugs, forged documents, hacker tools and even the services of hit men were hawked with payments made using the virtual currency.
The FBI seized 26,000 bitcoin worth $3.6 million at the time.