Ten Percent of ICO Funds Have Been Lost or Stolen, According to Ernst & Young

About a tenth of the funds raised via initial coin offering (ICO) have been lost or stolen, according to a new report published by big-five consulting firm Ernst & Young.

Hackers Strike ICO Funds

Nearly $400 million of the $3.7 billion ICO funds raised last year have been compromised by hackers, Ernst & Young said in a report it developed alongside Group iB. The startling find echoes broader concerns about cyber security in an industry that is highly vulnerable to attacks.

Phishing is the most common form of hacking targeting ICOs, with attackers looking to skim off the $300,000 generated every second via token raises.

Researchers weren’t shy in describing the myriad of problems facing the ICO industry, including “flawed token valuations, unclear regulations, heightened hacker attention and congested networks.”

Cyber breaches are nothing new for the cryptocurrency market. Major exchanges have lost millions in routine cyber attacks targeting user accounts.

The report also provided other interesting facts about the ICO market. More than 70% of the 110 projects surveyed in the study were launched on Ethereum. In terms of geography, the United States accounted for the largest share of ICO funding, with more than $1 billion flowing into American firms. China was second at $452 million and Russia third at $310 million (all figures are in U.S. dollars).

ICO Market: State of Play

The growth and widespread adoption of ICOs has given startups lofty expectations about how much they stand to generate via public crowdsale. The explosion has also put regulators on high alert for projects they deem to be in violation of securities laws. To that effect, the U.S. Securities and Exchange Commission (SEC) has stepped up its efforts to monitor the market. This includes shutting down projects that violate securities regulations as well as issuing cease and desist orders to prevent companies from delivering tokens to investors.

That being said, ICOs still operate in a legal grey area, which has prompted several startups to expedite their listings. After all, the gold rush is still on, and many companies want to capitalize.

ICOData.io estimates that December was the most lucrative month for token raises, with nearly $1.7 billion in funding generated. (According to ICOData, more than $6 billion was generated via token sales last year, which is well above the $3.7 billion figure assumed in the Ernst & Young research.)

Despite the market’s rapid appreciation, the researchers said it was becoming harder and harder for projects to meet their goals. Whereas 90% of ICO projects reached their fundraising goals in June 2017, by November that number fell to 25%. With more ICOs to choose from, investors are scrutinizing much more carefully the projects they are willing to support.

Until the regulatory picture clears up, ICOs will continue to make their way to market. Nations such as China have pulled the plug entirely on token raises, and the environment of fear suggests more countries may be following suit.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi