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How to spot cryptocurrency and Bitcoin scams

Three students in university library using laptop
Last updated: 1 September 2021

Cryptocurrencies and Bitcoin scams are popping up all over the internet. Choose the wrong investment opportunity and you could lose a lot of money – and none of it will be protected in the same way it would be if you put your money into a bank or other protected financial service. Cryptocurrency scams often have similar traits, so with the right know-how, you can spot them.

Promises of very high or guaranteed returns

It's so important to look at the offer and decide if it's realistic. Making a 1,000% on your money in 18 months would be amazing, but is it likely to happen with this brand-new offer? 

One of the ways fraudsters attract the money to their scams is by making up fake promises of returns. Without any strategy and supporting information as to why this initial coin offering (ICO) - the name for when a new cryptocurrency is created and people are given the chance to buy some currency at an early price – will increase so much so quickly, steer well clear.

Heavy marketing and promotional of offers

Another way cryptocurrency fraudsters attract people is by shelling out on heavy marketing. Full page spreads in newspapers, huge banners on websites, a horde of paid bloggers – it's all designed to reach as many people as possible in the shortest amount of time possible to raise money fast. 

A more legitimate cryptocurrency coin offering won't need to advertise and expand so quickly, because it will grow and develop naturally.

Unnamed, vague or even non-existent team members

Just like with any other business or investment, you should easily be able to find out who is running a cryptocurrency, including every member of the team. 

It means you can then research them, see what their background is, check their social media profiles, how old the accounts are, who followers them, how many followers they have and so on.

It might sound like a bit of work, but if a couple of developers in the team simply can't be found online, the directors have hundreds of followers, all of which are clearly paid for, and when you contact the organisation you don't hear back…give it a miss.

Check the whitepaper - every cryptocurrency should have one

The cryptocurrency whitepaper is one of the most important parts of an initial coin offering (ICO). It'll tell you how the cryptocurrency project has been designed, how it will grow, how it will make money, and basically exactly how the offering is going to work.

If you're reading a whitepaper and thinking "this doesn't make any sense", it could be because the founders are trying to confuse their investors, knowing that their product is a fake.

And if there's no whitepaper, it's definitely not worth investing in.

No published code

Don't be put off by this one. Not many people will be qualified enough to read the code base of a cryptocurrency. The code is what makes the cryptocurrency work, and most legitimate cryptocurrency teams will make their codes 'open source'. This means it is published openly, so anyone can read it, edit it, and check it is what the founders say it is. 

Of course, just because you can't read the code yourself doesn't mean not being able to see it is OK. If a cryptocurrency team are keeping their code secret, it should set alarm bells ringing. What are they trying to hide?

Not every legal and legitimate cryptocurrency has their code open sourced - but practically all illegal and fraudulent ones hide their code.

Unusual packages to invest with

You might be given the chance to subscribe, investing a certain amount and then getting a return daily or weekly. This return is often unsustainable, and will probably slow or even stop. 

There are lots of tricks and offers like this, and it's important you read the paperwork and understand how it works. Much of the time they're simply not a good deal.

Watch out for fraudulent trading platforms and brokers

A cryptocurrency trading platform lets you buy and sell currencies. But do your research, and check out reviews for platforms. Some will offer excellent deals, suggesting they can beat exchange rate fluctuations, and that they use automated technologies to make sure you get the best deal.

Brokers as well can be untrustworthy. Enticing introductory offers and once in a lifetime offers are all designed to get money from your wallet into the broker's website.

Both trading platforms and broker websites employing these tactics are overhyped and can lose you money. They often have high withdrawal fees, or expensive commission when trading cryptocurrencies with pounds, dollars or euros. They can also sometimes add extra processes for trading or withdrawals, which can add hours to the procedure. Check the small print before parting with your cash.

Read our article about How safe are my savings if my bank or building society goes bust?
Alan Thomas
Author Alan Thomas
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