10% of Cryptocurrency ICOs Are Stolen

A report by Ernst & Young has highlighted the fact that 10% of all funds raised through Initial Coin Offerings (ICOs) are stolen by hackers using techniques such as Phishing.

What Is An ICO?

An Initial Coin Offering (ICO) is a controversial way of start-up companies raising money / crowd funding to build new technology platforms or to fund businesses that use crypto currencies (also called tokens), and the underlying blockchain technology. The tokens only become functional units of currency if / when the ICO’s funding goal is met, and the project finally launches.

The controversy about ICOs centres around the fact that, although it is an innovative new source of venture funding, some commentators view ICO projects as unregulated securities that allow their founders to raise an unjustified amounts of capital, and that valuations of ICO tokens may be driven too much by the fear of missing out and, therefore, seem to result in investors rushing to put money into projects that ignore some important market fundamentals, such as project development.

$400 Million Stolen

After analysing more than 372 ICOs, Ernst & Young has reported that approximately $400 million of the total $3.7 billion funds raised to date has been stolen by hackers. The most widely used technique to steal the digital cryptocurrency funds was found to be Phishing, resulting in the theft of $1.5 million in ICO proceeds per month.

ICOs are an opportunity for scammers because they are able to take advantage of the promise of people making a huge return from a relatively low investment.

As well as scammers taking money, the study also found that underlying software code in some projects contains hidden investment terms that have not been disclosed, or that contradict previous disclosures e.g. saying there will be no further issuance of a cryptocurrency, while the code may leave that option open.

Challenges To Reaching Targets For ICOs

The Ernst & Young research shows that the volume of ICOs has been slowing since late 2017, with less than 25% reaching their target in November 2017, compared with 90% in June. Recent ICOs have faced challenges in reaching their targets, a drop in quality i.e. more low quality projects with higher fundraising goals are being presented, and issues from earlier projects are now being highlighted.

Crypto-based investment of choice is therefore waning, organizers and contributors are now facing increased regulatory scrutiny, and they are therefore now under more pressure to prove the longer-term potential of their product or service to an increasingly sceptical audience.

What Does This Mean For Your Business?

A drop in the value of popular cryptocurrency Bitcoin (its value has fallen 12% over 24 hours), added to warnings about investing in cryptocurrencies from the chairman of UBS and warnings by billionaire investor Warren Buffett (who said he would never invest in cryptocurrency), and news reports of scams such as a fake sale con for instant messenger service Telegram to unsuspecting would-be investors have all served as warnings about the risks of cryptocurrencies and of ICOs.

This latest Ernst & Young research has only served to cement that message to businesses and investors, and some commentators now think that ICOs could soon disappear altogether as a viable fundraising option, unless they can address the issue of security urgently and effectively.

Bitcoin More Valuable Than Gold

The value of a unit of the web-based crypto currency ‘Bitcoin’ has exceeded the value of an ounce of gold for the first time.

Last week, the markets recorded the value of a unit of Bitcoin at $1,268, compared to a troy ounce of gold at $1,233. A troy ounce is an imperial unit measure of the mass of a precious metal.

What is Bitcoin?

Bitcoin is a digital web-based currency that operates without the need for central banks and uses highly secure encryption (a crypto-currency) to regulate the currency units and to verify transfers of funds. Bitcoin uses the ‘Blockchain’ technology. Blockchain is an open and programmable technology that can be used to record transactions for virtually anything of value that can be converted to code and is often referred to as a kind of ‘incorruptible ledger’.

There are approximately 15 million Bitcoins in existence, and in order to receive a Bitcoin, a user must have a Bitcoin address (of which there is no central register). This address consists of a string of 27-34 letters and numbers, which act like a virtual post-box, to and from which the Bitcoins are sent.

The Benefits of Bitcoin as a currency for users are that payments can be transferred easily and quickly and anonymously (because it is outside of central banks and government control), across borders, continents and time-zones.

Relatively New and Fluctuating.

As a relatively newly introduced(2009) model of currency, Bitcoin has taken some time to gain popularity.

After a tenfold increase in its value in only two months and a surge in value to $1,163 back in 2013, Bitcoin has had its share of turbulent waters.

Predictions of its possible demise and a fall in the value of Bitcoin were fuelled by its collapse on the MtGox exchange in Japan in 2014 as a result of a hack.

Despite a crack-down on Bitcoin trading by Chinese authorities who feared that it was being used to channel money out of the country illegally, Bitcoin surged to reach new heights.

In January this year, the value of 1 Bitcoin received a 2.5% boost and jumped above $1,000 (£815) for the first time in 3 years. Bitcoin’s recent boost in value means that its total worth of $16 billion is around the same value as that of a FTSE 100 company.

Value Drivers.

Currency experts attribute the latest big rise in Bitcoin’s value to a big increase in demand in China due to the fall in the value of the Yuan in 2016. This has been the Chinese currency’s weakest performance in more than 20 years.

Bitcoin is also now looking like a viable alternative to cash in countries that have a shortage of it (e.g. India, which had high denomination bank-notes removed from circulation in November).

What Does This Mean for Your Business?

For businesses, Bitcoin has many attractive advantages such as the speed and ease with which transactions can take place due to the lack of a central bank and traditional currency control.

Using Bitcoin also means that cross-border and global trading is simpler and faster and the ‘crypto’ aspect of the currency makes it secure. Bitcoin’s decrease in volatility in recent times, plus the widening of popularity and potential uses for its underlying technology ‘Blockchain’ mean that Bitcoin looks increasingly attractive to businesses and governments in 2017.