January 23, 20185min699

$400M of ICO Funds Lost or Stolen

If you’ve ever participated in an ICO you know that the logistics of it are not for the faint-hearted. It’s complicated enough to keep many newcomers into the crypto space well away from them. And if this new research by Ernst and Young is to be believed, it’s also a lucrative hunting ground for hackers and scammers. Buyer beware!

Ico funds can be an opportunity for criminals.


Ernst and Young claim that over 10% of the funds raised in initial coin offerings have been stolen or lost. So what exactly is going on here?

Phishing for would-be investors

Having analysed various on-line data sources for 372 crypto-currency ICOs, Ernst and Young have calculated that around $400 million out of $3.7 billion in fundraising capital was either lost or stolen. Hackers’ favourite way of scamming would-be ICO participants was to direct them to a fake website i.e. phishing. This type of attack netted them as much as $1.5M per month last year.

Over $1 billion of funds were invested monthly into ICOs in the months of November and December of last year. Hackers saw a fantastic opportunity to take advantage of the crypto newcomers who were investing in their first ICOs. With blockchain transactions being irreversible and easily anonymised through various methods such as mixers, tor network, VPNs and via privacy coins, it’s essentially the perfect crime.

Another interesting statistic is coming from this report. Money was pouring into some of these ICOs at a rate of $300,000 per second. The vast majority of the ICOs easily reached their funding targets, although there was some cooling of of the market towards the end of the year.

Paul Brody, Ernest and Young’s global innovation leader in blockchain technology, attributed this drop-off to lower quality projects that joined in to take advantage of the ICO craze.

“We were shocked by the quality of some of the white papers, we see clear coding errors and we see conflicts of interest between the companies issuing tokens and the community of token holders.”

“The volume just exploded, people raised their fundraising goals and the quality just dropped,” Brody believes.

Due to the fear of missing out on potential monetary gain, many investors ignored all red flags, including blatant coding errors in project whitepapers. The service firm believes that irrational token valuations have been driving the ICO boom without any regard for market fundamentals.

Do not FOMO!

While ICOs are definitely still a valid investment option, it’s extremely important to do your research and really think before you jump in. Remember, you are investing in a new and yet unproven company and statistics are not kind to startups. Most of them fail within the first few years of operation. Either due to running out of funds or simply by not finding a customer for their product.

You may be thinking that’s plenty of time for you to make a quick buck on the crypto exchanges. But it certainly doesn’t hurt to think more long term as well. Just take Bitcoin for example. It took it 8 years to reach its peak and it rewarded its holders much more handsomely than its traders.

Firms from the traditional financial world, such as Ernest and Young are now chiming in with their considerable analytical clout. It’s absolutely worthwhile to listen up and pay close attention to what they have to say.

Cryptocurrency world is still full of risks, from bad projects to straight up scams and ponzi schemes. So be sure to keep that in mind before you part with your hard earned Ether!

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