More than 10 percent of $3.7 billion raised in ICOs has
been stolen: Ernst & Young
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 [January 24, 2018]
By Anna Irrera
NEW YORK (Reuters) - More than 10 percent
of funds raised through "initial coin offerings" are lost or stolen in
hacker attacks, according to new research by Ernst & Young that delves
into the risks of investing in cryptocurrency projects online.
The professional services firm analyzed more than 372 ICOs, in which new
digital currencies are distributed to buyers, and found that roughly
$400 million of the total $3.7 billion funds raised to date had been
stolen, according to research published on Monday.
Phishing was the most widely used hacking technique for ICOs, with
hackers stealing up to $1.5 million in ICO proceeds per month, according
to the report.
The research also noted that the volume of ICOs has been slowing since
late 2017. Less than 25 percent of ICOs reached their target in
November, compared with 90 percent in June.
The study comes amid a cryptocurrency investing craze, with young
companies raising hundreds of millions of dollars online to fund their
projects, with often little more than a handful of employees and a
business plan outlined in a so-called "white paper".
The challenges faced by more recent ICOs in reaching their targets are
partly attributable to the lower quality of projects, as well as issues
that have emerged around earlier projects, said Paul Brody, global
innovation leader for blockchain technology at Ernst & Young (EY).
"The volume just exploded, people raised their fundraising goals and the
quality just dropped," Brody said in an interview.
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Men talk in front of an electric board showing exchange rates of
various cryptocurrencies at Bithumb cryptocurrencies exchange in
Seoul, South Korea, January 11, 2018. REUTERS/Kim Hong-Ji
"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."
In ICOs companies typically raise money to build new technology platforms or to
fund businesses that use cryptocurrencies, also called tokens, and blockchain,
the software that underpins them. Yet for many of these projects the need for
blockchain and cryptocurrencies is often unjustified, according to EY.
It also noted valuations of ICO tokens are often driven by "fear of missing
out", or "FOMO", and have no connection to market fundamentals such as project
development. EY said "FOMO" has led investors to pour money into ICOs at record
speeds, with the 10 shortest lasting ICOs attracting $300,000 per second on
average.
The study also found several instances in which the underlying software code of
a project contained hidden investment terms that had not been disclosed, or
contradicted previous disclosures. For example, a whitepaper might state that
there will be no further issuance of a cryptocurrency, while the code might
leave that option open.
(Reporting by Anna Irrera)
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