According to a recent report from Ernst and Young, 10% of funds raised through ICOs in 2015-2017 have been lost in scams or stolen by hackers. That is an equivalent of about $400 million stolen from $3.7 billion raised in the more than 372 such offerings from around the world.
The report blames the following risks associated with the ICO market: Flawed token valuations, unclear regulations, heightened hacker attention, and congested networks.
“The more hyped and large-scale the ICO, the more attractive it is for attacks,” the Ernst and Youngs’ report states.
Thus new startups and ICOs become soft targets for hackers.
Cryptocrime’s rise clearly coincides with growing hype in the cryptocurrency world. Current information chaos on social media with terabytes of shared media daily makes it hard to tell a legit ICO from a fraud.
A fresh ICO scam was pulled off by a Lithuania startup called Prodeum just this weekend.
The startup’s website (cached here) promised to revolutionize the agriculture industry by using the blockchain and its own Ethereum token. It sought to raise $6.5 million, but has pulled an exit scam this weekend, shut down its website that now shows only one word, rhyming with “thesis.” They raised a comical grand total of $11, but the incident serves well to highlight the current situation.
Similarly, Telegram’s upcoming $1.2 billion ICO “inspired” at least a dozen scam sites; while this past weekend, a Japanese exchange site have lost over $400 million in tokens.
In the wake of such turbulence, many financial and state authorities worldwide have warned their citizens on the risks of buying cryptocurrencies or investing in ICOs.
In November, Russia’s Central Bank for the second time warned “cryptocurrency bubble” might result in huge losses for its buyers and has been taking a hard stance against cryptocurrency.
And today, Hong Kong authorities announced they are taking on ICOs and cryptocurrencies more seriously. The authorities are launching TV programs and other media to warn of “potential risks” of such investments. In March, they will air television and radio advertisements, an educational video is to be shared on popular social media platforms, and a range of educational articles and infographics has been developed “to help the public understand the features and risks of ICOs and ‘cryptocurrencies’.
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