In recent years, phrases like “Bitcoin”, “Cryptocurrency”, and “Etherium” have entered into the conversation through our TVs, on social media channels, and online with increased frequency.
For many of us, understanding the workings of cryptocurrency and crypto-assets is taking some getting used to, with new forms of the digital currency entering the mix regularly.
What does the terminology mean?
Crypto currency is a form of digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority (e.g., The Bank of England). In more straight-forward terms, it is a form of digital currency. According to Statista, there are approximately 9,900 different types of crypto currency in existence.
Bitcoin, Dodgecoin, Etherium, and Tether are examples of different types of digital currency in which a record of transactions is maintained, and new units of currency are generated by computers solving mathematical problems. If you think about them like different types of money, the way we would consider differences between pounds, dollars and Euros – all will have different values at different times.
So, what do crypto scammers do?
Crypto scammers are rarely based in the UK but will often claim that they are to reassure the people they target and may even use a prestigious UK address to seem more legitimate.
They use software that creates misleading information. Often crypto assets are worthless or non-existent. Another tactic used by scammers is to close accounts without warning and disappear with any investment made by the target of one of these scams.
Help in getting money back – the scammers
Very often, those who have already invested in a crypto-related scam will be targeted again by the scammer, who may even sell the personal information on to other criminals. They may claim to be contacting from an organization that can help you get lost money back from previous investment scams or losses. In the majority of cases, this is another type of scam.
It is important to watch out for scams when considering making investments in crypto, particularly if we have received unexpected contact from someone offering an investment opportunity.
Currently, regulation of crypto assets in the UK is not as tight as it is with other financial products and services. The UK government has announced plans for new rules governing the issuance, lending, and trading of crypto tokens, however this is not currently in place at the time of writing.
Those choosing to invest in cryptocurrency in the immediate future before this legislation has passed will not have access to the protections offered by the Financial Ombudsman Service or the Financial Services Compensation Scheme if they are scammed or if something else goes wrong.
What precautions should we take when it comes to crypto?
- Be wary of ads online – Avoid online or social media adverts that claim high returns on crypto asset or crypto asset-related product investments.
- Check with the FCA – Firms must be FCA authorised to advertise or sell Crypto asset derivatives (such as futures contracts, contracts for difference and options – more complex aspects of crypto investment). Check the FCA’s Register to make sure this is the case.
- Research is best – Always conduct thorough research on any financial product(s) you are considering and the firm you are considering investing with.
- Check with Companies House to see if they are in registered in the UK. Also check directors’ names to ensure they are legitimate. A similar check should be done with the company itself.
- Never assume a professional website, well-known brand or celebrity endorsements are confirmation of authenticity.
- Seek impartial and independent financial advice from an adviser. Do not do this with an advisor from the crypto-trader making the offer, as this may be part of a scam. The FCA provide more information on finding an independent adviser on their website.
- Check the FCA Warning List for traders to avoid when investing.
- Pressure to invest is a sign of a scam – Never allow the crypto trader to rush or pressured you into purchasing. This can be a clear sign of a scam if they do.
- Don’t pay to recover money – If you have been scammed, do not pay another potential scammer in order access the funds in your account. This could be part of a larger scam.
It’s important to understand that financial scams are fraud, and are a criminal offence. You should reach out to your bank in the first instance to see if they can put a stop to any pending transactions, and report this to the police on the non-emergency number ‘101’.
Additionally, your bank may be able to offer assistance in getting funds back, especially if you have made the investments / purchases using a credit or debit card.
Advice Direct Scotland are encouraging consumers to steer clear of the catfish to avoid being scammed on and around Valentine’s Day 2023. For more information, visit the designated campaign page.