1. Home
  2. Personal Finance Hub
  3. Cryptocurrency scams explained
Published 03 August 2022
Reading Time
6 minutes

Cryptocurrency Scams Explained

Cryptocurrency scams are rising as digital currency becomes more popular among investors. Find out the most common types of cryptocurrency scams and what to do if you think you’ve been affected by one.

Written By

Cryptocurrencies, like bitcoin, are becoming increasingly popular and in the UK around 2.3 million people now hold cryptoassets.

Criminals have tried to capitalise on the rising popularity of cryptocurrency, using sophisticated tactics to trick people out of their money.

Here, we run through how to spot some of the most common cryptocurrency scams and what to do if you think you might have fallen for one.

What is a cryptocurrency scam?

A cryptocurrency scam is a type of investment fraud that involves criminals stealing money from people hoping to invest in the new world of digital currency.

Most cryptoassets and associated services aren’t regulated by the Financial Conduct Authority (FCA) for more than money-laundering purposes, which means they’re not protected by the Financial Services Compensation Scheme.

So it’s unlikely that you’ll be able to recover any money lost to a cryptocurrency scam.

» MORE: Learn more about what a cryptocurrency is and how they work

What are the different types of cryptocurrency scams?

Here are some of the most common cryptocurrency scams:

Celebrity endorsement cryptocurrency scams

Some fraudsters create adverts using images or videos of celebrities to promote their cryptocurrency investments.

They target people on social media platforms and claim that high-profile public figures endorse their investment scheme.

The adverts often link to professional-looking websites where they try to persuade people to buy non-existent investments using cryptocurrency or traditional currencies.

Some fraudsters create fake accounts that they manipulate with software to make it seem as though an investor is making a return, encouraging them to invest more.

Once the investor has increased their investment, their account is closed and the scammers vanish with their money.

In other scams, criminals disappear as soon as they receive the first payment, leaving investors empty-handed.

Phishing cryptocurrency scams

Often scammers will contact people randomly via email, offering an unmissable cryptocurrency investment opportunity.

The emails usually link to a professional-looking website with more information about the fake investment scheme.

Some ask for the investment to be made in cryptocurrency while others request traditional currency.

Once payment is received, the criminals stop communicating with the investor and sometimes take down the website used to trick them.

In other phishing scams, criminals ask investors to share their private keys, which are used to secure their cryptocurrency wallets, so they can access a person’s account and steal their cryptocurrency. Make sure to only download crypto wallets from the official website.

If you are already registered to a site, scammers may also attempt to create clones that look just like ones you are used to logging into. So always check the domain name clearly and make sure it belongs to the site you are trying to access.

Exit scam

An exit scam or, initial coin offering (ICO) scam, is when fraudsters pretend they have created a new type of cryptocurrency coin that promises to be the next big thing and generate huge returns, to then vanish into thin air with investors’ funds.

A common exit scam is when scammers launch a new cryptocurrency platform and share convincing marketing materials to raise money from investors usually in the form of an ICO.

Once enough money has been collected, the criminals pocket the investment and vanish with investors funds. These scams are more rife in the crypto space, due to easier listing requirements and the fact that it’s harder to trace the missing funds.

Exit scams are not specific to ICO’s and can also happen after a coin has been around for a while.

These scams are usually a version of a Ponzi scheme where money is generated from new members is used to give the illusion of a profitable investment.

This can go on for an extended period of time however with these types of scams the end result is always the same with the creators of the scheme disappearing with investor funds.

Cryptocurrency cloud mining scam

Some cryptocurrencies are created through a process called mining which involves people solving complex mathematical problems using their computers.

It requires expensive hardware and uses a lot of electricity to mine a single unit of cryptocurrency.

A new wave of cloud mining platforms has emerged which allow people to mine cryptocurrency without the need for expensive computers and running up bills.

However, criminals have tried to capitalise on this and set up fraudulent cloud mining software platforms and apps that steal cryptocurrency from miners instead.

How can you avoid cryptocurrency scams?

Cryptocurrency scams are becoming increasingly sophisticated and convincing but there are ways to avoid being caught out.

What to do if you have been scammed

Being caught out by a cryptocurrency scam can be devastating but it’s important to act quickly if you’ve made a payment or shared personal details.

You need to contact your bank as soon as possible if you have:

Fraudsters often retarget victims of cryptocurrency scams or sell their details to other criminals. So, be sure to change your security details and passwords, especially for online banking, if you think you’ve been caught out by a scam.

How to report scammers

Whether you’ve fallen for a cryptocurrency scam or just seen one online, it’s really important to report them as it helps officials investigate fraudulent companies and stop them from targeting other people.

You should report cryptocurrency scams to Action Fraud, the UK’s national reporting centre for fraud and cybercrime.

You can also report a cryptocurrency scam to the FCA by contacting their consumer helpline on 0800 111 6768 or by using their online reporting form.

If you think scammers were able to get in touch with you because of a data breach it’s worth contacting the Information Commissioner’s Office (ICO).

The ICO investigates possible data breaches and can fine companies who aren’t able to protect your data sufficiently.

WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in.

Image source: Getty Images

Dive even deeper

NerdWallet UK Survey: Retirement and Emergency Funds are the Most Popular Savings Goals

NerdWallet UK Survey: Retirement and Emergency Funds are the Most Popular Savings Goals

New research by NerdWallet UK reveals that a majority of UK adults have clear savings goals and are taking action to reach them.

UK Lifestyle Debt Worries Statistics

UK Lifestyle Debt Worries Statistics

Almost a third of UK adults feel pressure to spend more than they can afford, using credit cards, loans or overdrafts. New research shows that debt worries still affect those earning above the average salary.

Childcare Funding is Changing This Year: Make Sure Your Family Doesn’t Miss Out

Childcare Funding is Changing This Year: Make Sure Your Family Doesn’t Miss Out

The government’s Childcare Choices scheme is expanding, so more families stand to benefit from 15 or 30 hours funded childcare. But accessing what you’re entitled to isn’t always straightforward. We explain how to claim what you’re eligible for.

Back To Top