What are cryptocurrencies?
Cryptocurrencies are virtual peer-to-peer currencies that are decentralised. This means the currency only exists online and is not controlled by a bank, treasury or country – you can’t get physical notes or coins from the bank.
Bitcoin is the most famous cryptocurrency, but there are more than 1,500 cryptocurrencies including other well-known ones such as Ethereum and Litecoin.
Many legitimate businesses – such as Expedia and Microsoft – accept cryptocurrencies as payment.
Quick transaction times is one of the reasons people like cryptocurrencies. But, cryptocurrencies also allow you to pay for or sell something anonymously, so they also appeal to scammers and shady online dealers.
Before a new cryptocurrency is launched on an exchange, you will be able to buy cryptocurrency coins or tokens as part of an Initial Coin Offering (ICO). This is usually what's known as a pump-and-dump – when a price becomes inflated at launch, and then rapidly crashes.
If you’re wondering whether to invest in Bitcoin, find out more about how Bitcoin works.
1 What is a Bitcoin scam?
A scam can take many forms, this could include:
- a fake cryptocurrency which doesn’t and won’t ever exist – for example if it’s a fake Initial Coin Offering (ICO)
- a bogus investment which promises to put money in a legitimate cryptocurrency
- a dangerous website link that then downloads malware onto your computer
If you don’t understand a cryptocurrency or an investment, avoid it. Do not hand over any money.
2 Does the ICO have a whitepaper?
If you are interested in investing in an ICO, make sure you check whether it has a white paper which will tell you how the offering will work, how it will grow and how it will make money.
If you don’t understand the white paper, the figures just don’t stack up or the ICO doesn’t even have a white paper, avoid the investment altogether. It’s not worth the risk.
3 Is the deal too good to be true?
As always, if something sounds too good to be true, it probably is – a 200% return on your investment in 12 months is unrealistic so you should always question an offer such as this.
ICO investments might promise the that cryptocurrency will definitely increase by a certain percent when it launches, but there is simply no way to guarantee this.
Most scams have tell-tale signs, no matter what the investment – these include being rushed into making a decision, being contacted out of the blue and promising good returns for your money.
You should be especially wary of any offer you were sent out of the blue.
Find out more in our guide on how to spot a scam.
4 How did you find out about the Bitcoin investment?
Was it a social media advertisement? An email or phone call out of the blue? Or was it advertising on a website?
Fraudsters will often spend a lot of money on getting your attention, knowing their reward will be high if you fall for the scam, so be wary.
Legitimate bitcoin or cryptocurrency investments won’t be so desperate to advertise.
Watch out for the Dragon's Den scam
The Which? Money Helpline gets many calls about an online article featuring an episode of the Dragon's Den TV show, which supposedly endorsed bitcoin. It was totally fake.
5 Is the website legitimate?
Looking at the URL, does the website have https – if it doesn’t, the website and the information you give it is not secure. Be aware that http (without the ‘s’ on the end) is not secure.
A green padlock will also help you judge this – but this should only be one of many measures you use to decide if a website is secure as some browsers no longer use these.
You should also check the website’s spelling and grammar. A legitimate website would have paid to have its content checked, so if there are mistakes this is a warning sign.
You can read more about how to spot a fake website in our free guide.
6 Are you being threatened?
A common phishing scam email is when fraudsters contact people saying they’ve got footage of them visiting adult sites. They claim that the only way they won’t release the footage is to pay them Bitcoin.
This is a scam. If you get this email, you should not respond and change your password. We have information on how to choose a strong password or which password manager is best for you.
We have more information about this particular sextortion scam email on our Which? Computing site.
7 Do you trust the person or people you’ve investing with?
If the person you’re speaking to is overly pushy and you feel pressured into the investment, you should tell them you’ll talk to them later. You should then discuss it with someone you trust and do some more research.
Do some wider research on the company and check online for other people’s reviews and experiences.
If there are a lot of negative reviews, or there isn’t any information at all, this should set off alarm bells.
If you think you’ve fallen victim of a scam, you should tell your bank about the scam as soon as possible.