Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
1. You could lose all the money you invest
2. You should not expect to be protected if something goes wrong
3. You may not be able to sell your investment when you want to
4. Cryptoasset investments can be complex
5. Don't put all your eggs in one basket
If you are interested in learning more about how to protect yourself, visit the FCA's website here.
For further information about cryptoassets, visit the FCA's website here.
Cryptocurrencies are complicated, confusing to new users and basically unregulated in the UK, all of which makes them an ideal subject for scammers. But with a little bit of know-how and common sense, you can protect yourself against cryptocurrency scams, including those involving Bitcoin.
We've listed out some of the most common Bitcoin and other crypto scams it's a good idea to have on your radar.
The first scam on the list is one that you may well be familiar with already, as it's also been widely used to target customers from major banks.
Known as "phishing," this type of scam occurs when you receive an unsolicited email that looks as if it's from your bank — or, in this case, from your crypto exchange or wallet provider. This email contains a link that takes you to a site that looks almost identical to the exchange or wallet you usually use, but is actually a scam site.
Once you enter your account details on this unofficial page, the scammers have everything they need to log in to your real account and steal your funds.
How to avoid phishing scams:In a similar vein to phishing scams, keep an eye out for fake Bitcoin exchanges. They might walk and talk like a reputable exchange, but they're merely a front to separate consumers from their hard-earned cash.
Some will entice users with promotional offers that sound too good to be true. Others pressure users into creating an account and depositing funds, perhaps even offering "bonuses" to those who deposit larger amounts. But once they have your money these platforms might charge ridiculously high fees, make it very difficult to withdraw funds or simply steal your deposit altogether.
Other scammers have turned their attention to creating quite sophisticated fake wallet apps that, once downloaded to a user's smartphone, can be used to steal critical account details. These apps have even made it into official, legitimate app stores like Google Play, so it pays to do your research before downloading anything to your phone.
In December 2017, the Bitcoin community and South Korean authorities exposed a fake exchange known as BitKRX.
By posing as a legitimate exchange and passing itself off as a branch of KRX, a large and reputable trading platform, it was able to ensnare innocent users.
How to avoid fake exchange and fake wallet scams:
In 2017, crypto exchange Poloniex was the target of a sophisticated scam that saw at least three fraudulent Poloniex trading apps listed on the Google Play store.
Two of the apps, "Poloniex" and "Poloniex Exchange," were downloaded more than 5,500 times before they were removed from the store. These apps asked Poloniex users to enter their account credentials, thereby giving fraudsters a way to perform transactions on behalf of users and even lock victims out of their own accounts.
Cryptos may be based on new technology, but there are still plenty of scammers using old tricks to con unwitting consumers.
The classic example of this is an unsolicited phone call or email from someone claiming to be with the IRS. This fictional tax man will try to convince you that you owe the IRS money and you'll be facing legal action if you don't transfer them a certain amount of Bitcoin as soon as possible.
The tried-and-tested "Nigerian prince" scam has also migrated into the world of cryptocurrency. So if you're ever contacted out of the blue by someone overseas promising you a share in a large sum of digital currency if you help them transfer funds out of their own country, use your common sense and recognise it for the scam it is.
How to avoid old-school scams:
Seduced by the astronomical price rises Bitcoin has experienced since its inception, many everyday consumers venture into the world of cryptocurrency looking for the next big thing. After all, if "the next Bitcoin" ever actually arrives, getting in at the ground floor could see early-adopters earn a fortune.
And if you want to get in on the ground floor, the easiest option for the average person is to buy coins or tokens in an ICO. There's a huge appetite for new digital currencies — in the first half of 2018 alone, ICOs raised a total of US$11.69 billion — and with many new buyers having limited knowledge of how the crypto industry works, it's the perfect breeding ground for scammers.
In April 2018, the Pincoin and iFan ICOs, run by the same Vietnam-based company, are believed to have cheated more than 30,000 investors out of a combined total of $660 million.
iFan was meant to be a social media platform for celebrities and Pincoin promised 40% monthly returns to investors. Both were later shown to be multi-level marketing (MLM) scams.
This has led to the rise of fake ICOs which, with some slick marketing and a little bit of hype, can convince people to buy a cryptocurrency that doesn't actually exist. For example, one report found that 78% of ICOs in 2017 were scams, while a separate report put that figure at above 80%.
Finally, if you're dreaming of getting rich quick from a crypto ICO, be aware that for every ICO success story there are many, many more failures, even if the project isn't a scam.
How to avoid fraudulent ICOs:
Similar to how scammers will sometimes pretend to represent the tax office in the hope of coercing victims out of money, they'll also pretend to be hackers with some kind of incriminating evidence.
One common variation of this scam arrives in the form of an unsolicited email, where the sender claims to be a hacker who has accessed your PC. They will say they've found some kind of incriminating evidence, or taken over your webcam to capture footage of you doing something embarrassing or which you'd rather other people didn't know about. The emails promise to send the incriminating evidence to all of your email or social media contacts unless you send some Bitcoin to the blackmailer, and will typically include instructions on how to purchase Bitcoin and where to send it.
Naturally, it's all a lie. The phony blackmailers don't have any evidence and nothing will happen regardless of whether or not you make a payment. This scam is purely a numbers game, where the perpetrators hope that by sending out enough emails they'll scare enough people into sending them some Bitcoin.
How to avoid Bitcoin blackmail scams
One type of scam that's common to many large sites and social media platforms is a celebrity impersonation giveaway scam. Here, the scammers will impersonate a celebrity or other notable person and announce that they're giving away a lot of cryptocurrency for free, as long as you send them some cryptocurrency first.
The scammers will often promise to send back double what you send them. Although especially prominent on X (formerlyTwitter), this scam has also appeared on platforms including YouTube, where scammers will impersonate a celebrity in a video or livestream.
This scam is all about quickly rushing victims into a bad decision by making them think they're missing out. A typical giveaway scam always specifies a total amount of cryptocurrency, such as "5,000 ETH giveaway" and then uses an army of bots and fake accounts to make it look like people are actually receiving money.
After seeing all the apparently free money being given away, victims race to send money to the scammers before they have time to think it over.
On X (formerlyTwitter), the fake giveaway bots will often have a blue "verified" check mark, but this does not mean anything. The scammers obtain this by taking over verified accounts and then changing the names. Similarly, scams will often have thousands of likes, views, retweets or other types of social proof. Those are just from bots, and don't mean anything either.
Although there are some ways to get free crypto, it's only possible to get small amounts and there's often some kind of catch.
How to avoid impersonation giveaway scams
A Ponzi scheme is a simple but alarmingly effective scam that lures in new investors with the promise of unusually high returns. Here's how it works: a promoter convinces people to invest in their scheme. These initial investors receive what they believe to be returns, but are actually payouts from the money deposited by newer investors. Now satisfied that the scheme is legit, those investors who received payouts pump more of their money into the scheme and encourage others to do the same.
Sooner or later, the scheme collapses when the promoter runs off with the money or it becomes too difficult to lure new investors. These types of pyramid schemes are nothing new and can be easy to spot, but that hasn't stopped some crypto buyers from being scammed in a handful of high-profile incidents.
In January 2018, Bitcoin investment lending platform Bitconnect shut down its lending and exchange services amid allegations it was a Ponzi scheme. Launched in early 2017 with promises of returns of up to 40% per month, the platform was quick to attract criticism from the wider crypto community and soon drew the attention of regulators.
How to avoid Ponzi/pyramid schemes:
A crypto rug pull is a type of exit scam in which a smart contract is robbed of its funds by one of the contract's own developers, after a substantial number of users have deposited money. Rug pulls have become increasingly common in the DeFi space, where users deposit funds into specialised smart contracts in order to earn rewards – a process known as "yield farming". Once a large enough sum of funds has been deposited into the contract, one of the developers will then steal the funds, either using the contract's keys or a hidden backdoor in the code.
A rug pull can be very difficult to spot before it happens as they typically originate from profitable projects that function as intended, unlike a Ponzi scheme or ICO scam which are illegitimate from the outset. Furthermore, because of the rapid and dynamic nature of DeFi, users often enthusiastically "pile in" to new projects early in their life-cycle while profits are highest, which may give the project an unwarranted degree of trust.
SushiSwap was famously rug pulled for 37,400 ETH by its developer, Chef Nomi, after amassing US$1 billion worth of funds after only a few weeks of operation.
How to avoid crypto rug pulls:
Malware has long been a weapon in the arsenal of online scammers. But thanks to the complicated and highly technical nature of cryptocurrencies, much of which isn't well understood by most people, malware now poses an even bigger threat.
Rather than stealing credit card and bank account details, crypto-related malware is designed to get access to your web wallet and drain your account, monitor the Windows clipboard for cryptocurrency addresses and replace your legitimate address with an address belonging to a scammer, or even infect your computer with a cryptocurrency miner.
How to avoid cryptocurrency malware scams:
Cloud mining allows you to mine cryptocurrencies like Bitcoin without having to purchase the expensive hardware required to do so. There are several legitimate cloud mining services that let users rent server space to mine for coins at a set rate. There are also some legitimate ways to invest in Bitcoin mining companies and share profits from them.
However, there are also plenty of cryptocurrency mining scams out there. Some promise astronomical (and implausible) returns and fail to disclose a range of hidden fees, while others are fronts for Ponzi scams and are simply designed to part you from your money.
It's also important to note that even if it's not an outright scam, cloud mining will always be a bad investment compared to simply buying cryptocurrency, as will leasing any other form of cryptocurrency mining equipment. The quirks of Bitcoin mining economics means that no matter what Bitcoin prices do, you'll always be better off just buying the equivalent amount of Bitcoin instead of trying to invest that money in a mining scheme.
Even if they're not technically scams, it's a mathematical fact that all "legitimate" Bitcoin cloud mining businesses and consumer-oriented miner rental schemes are invariably bad investments.
How to avoid cryptocurrency mining scams
Cryptocurrencies are often dismissed as a speculator's dream come true that are ripe for a little bit of market manipulation, which has led to the rise of what are known as "pump and dump" schemes. This is where large groups of buyers target an altcoin with a small market cap, buy that coin en masse at a particular time to drive its price up (which attracts a whole lot of new buyers fueled by FOMO — a fear of missing out) and then sell to take advantage of the significant price rise.
This sort of thing is illegal in traditional securities markets, but is a common occurrence in the largely unregulated world of cryptocurrencies. In fact, there are several online groups and forums dedicated to this exact practice, so it's important that you stay savvy and know how to steer clear of these scams.
How to avoid pump and dump scams:
In January 2018, a fake X (formerlyTwitter) account purporting to belong to cybersecurity guru and crypto enthusiast John McAfee tweeted support for the GVT cryptocurrency, naming it "coin of the day."
For some in the crypto community, this was good enough reason to buy some GVT, and just four minutes after the tweet was posted the price of GVT had jumped from $30 to $45 and trading volume had doubled. Fifteen minutes later, the price was hovering around the $30 mark once again, after early buyers "dumped" and ran.
On closer inspection, the X (formerlyTwitter) account was revealed to be bogus and not associated with McAfee at all. Instead, it was simply a key player in a pump and dump scheme devised and implemented in a chat room called "Big Pump Signal."
Unsure whether a particular crypto website is a scam or not? Use this checklist to help sort legitimate providers from those platforms you're better off avoiding altogether.
Please note that this checklist is far from foolproof, as it's possible for a website to pass several of the above tests with flying colors and still be a scam. The important thing to remember is to do your due diligence before providing any personal or financial information to any website or app.
If you've sent money overseas as the victim of a scam, unfortunately the chances of you getting your money back are very slim. This is true for all international scams, but cryptocurrency in particular is especially difficult to recover.
You can still report it though, to help prevent other people from falling victim, to the British Cybercrime Centre at the National Crime Agency. To help spread the word faster, you can also report specific types of scams to the relevant agencies.
You can also help by reporting any scams you see on social media, using the 'report' button provided by most platforms.
There are plenty of other simple steps you can take to protect yourself against fraud and Bitcoin scams, which we've listed below. Thankfully not all crypto promotions are scams, and you can find legitimate crypto offers in our guide.
When you're choosing an exchange, you can consider factors like where it's based, how long it's been around, how popular it is, what people say about it online and what licensing/authorisation it has.
In the UK, cryptocurrency is unregulated, so the UK watchdog – the Financial Conduct Authority (FCA) – doesn't authorise or regulate any exchanges. However, since 2020, the FCA has been supervising crypto asset firms operating from the UK for their compliance with anti-money laundering and counter-terrorism financing laws (AML/CTF). Crypto businesses which pass the FCA's checks can be on its register of crypto asset firms. This doesn't technically offer any huge protection to consumers, but it may offer reassurance that a crypto asset firm has applied and been accepted onto the FCA's register.
Some examples of FCA-registered crypto asset firms include:
There are plenty of other simple steps you can take to protect yourself against Bitcoin and crypto fraud, such as:
*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.
Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.
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I replied to an advert and decided to invest £200 in blockchain.A company rang me and sent my money by card.after a couple of days I changed my mind so sent an e.mail requesting my money back and they put it back.great.
Now they ring me almost weekly saying I have money in my account which has been trading and what do I want to do with it.
I have no wallet or any other means of connection to them this surely must be a scam
hi i have been approached by a company claiming to be NBFCS saying i have a crypto account that has been frozen due to fraudulant use but to my knowledge i thought i didnt have one , they have rang me for 4weeks now and asking me to verify myself so they can start to release the funds but need me to transfer $250 to make sure i am who i say i am and to link bank account to my crypto wallet can you give me advice , is this scam or does this really happen for real
That sounds very much like a scam, Daz.
I have received an email promoting “Click Money” for trading bitcoins.
They say one will make many dollars a day etc.
Is this a legitimate scheme?
Thank you.
Tim Allpress
Hi Tim,
Thanks for contacting Finder.
If you think that the offer is too good to be true then its a scam. Know that market trading is a risky endeavor, and cryptocurrencies are very volatile. Cryptocurrencies rise and fall without warning so nobody can guarantee that you can make lots of dollars a day.
I hope this helps.
Kind Regards,
Faye
Is Coin-bits a genuine company/ broker
Hi William,
Thanks for contacting Finder.
I’m afraid, we don’t have a review page for Coinbits Exchange. Their website looks legitimate though, using the checklist above looks like the website connect securely over https and I can see the word “Secure” or an image of a padlock in your web browser’s address bar. No mispelled words and they have an About us page.
If you want to know more, you can ask around, read reviews, and see what other people say about this company. The final decision is yours to make.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Faye
Scams are unfortunately all too common in the field of binary options. Dishonest brokers and reviews, or rigged robots and other auto trading services the scams can come in many forms. So we feel it’s necessary to create this blacklist and list all known frauds and dishonest techniques in one place. We also go through the steps you can take to identify a scam and how to deal with the situation after the fact if you’re already a victim. If you know or suspect something is a scam, or you’re already a victim of a scam, please let us know and we will look into it!
myscamexperience.com let’s help others not to fall victims to scams like this
Hi Asake,
Thank you for reaching out to Finder.
Thank you for your feedback on the page.
Cheers,
Reggie