Beware the cryptocurrency con men

The hype about digital currencies is growing – but wise investors should steer clear of this unregulated world of financial scams, says John Carter.

Most MoneyWeek readers will probably have heard of bitcoin, even if they are not entirely sure what it is. Bitcoin is a cryptocurrency a digital medium of exchange that uses cryptography to control the creation of new units of the currency. Put as simplistically as possible, it's as if the number of pounds in circulation were controlled not by the Bank of England, but by the output of algorithms running on an interconnected network of millions of computers worldwide.

What most people don't realise is that bitcoin is just one of thousands of cryptocurrencies that are competing to replace traditional currencies. Most of these cryptocurrencies are small, volatile and highly illiquid. Their value can fluctuate wildly in a short space of time. Gains of 300% in a single day are not unknown. Nor is the possibility that they might evaporate altogether in seconds.

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