Virtual currencies allow internet users to purchase goods and services online – without relying on a central bank or credit card system.

However, virtual currencies are not regulated by the Financial Conduct Authority so consumers are not protected if a platform that exchanges or holds them fails or goes out of business.

Virtual currencies can be converted back to traditional currencies, and once converted, money held with an authorised bank, building society or credit union is protected by the FSCS up to £85,000 per account holder and £170,000 for joint accounts.

Bitcoin is the most well-known digital currency and has grown in popularity since its launch in 2008. It is now accepted by mainstream internet giants including blogging site WordPress and dating site OkCupid.

Mark Oakes, head of communications at the FSCS, said: “FSCS protects up to £85,000 of depositors’ money in savings and current accounts with UK authorised banks, building societies and credit unions. However, virtual currencies are not regulated by the UK regulators, so FSCS does not provide protection in the event of any losses suffered by consumers.”

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The European Banking Authority (EBA) issued a warning to consumers in December detailing several potential risks that people are exposed to while using virtual currency.