Poor returns, failed technology, and outright scams are some of the reasons investors are leery of ICOs.
2017 has been a fantastic year for ICOs, and we’ve covered many of biggest and most exciting releases. ICOs have skyrocketed into mainstream prominence. Each day we see more and more ICOs being submitted to our ICO calendar. The advantages of ICOs are two-fold; the team gets money fast, investors get tokens early. But the dark side reared its head this year too. Poor returns, failed technology, and outright scams are some of the reasons investors are leery of ICOs. Many have called the ICO trend a bubble, and theSEC has been deliberating cracking down. Below are a few cautionary tales.
1. ONECOIN
One of the worst ICOs of 2017 was OneCoin, a textbook scam from start to finish. OneCoin was a multi-level marketing Ponzi scheme (think Cutco knives). It’s difficult to give more detail, because there’s no information a token was ever created. The team had little concrete to show investors, and certainly no working prototype. Some of the team’s biggest members had previously been linked to other scams. Dr. Ruja Ignatov, founder and COO, may have falsified her qualifications on the company’s website. Speaking of the website, it was a parody of a scam site. Spelling was poor, and technical problems were common. Numerous governments warned against investing. On April 24th, Indian authorities raided a OneCoin meeting. 18 were jailed, but not before OneCoin scammed investors out of 350 million. Tellingly, they accepted funding in standard currency, not Bitcoin or Ethereum like most ICOs. The story was a black eye on the crypto world.
2. ENIGMA
Some crypto scandals aren’t a result of poor intentions; just poor execution. Such was the case for Enigma. Enigma is a security and cryptography coin, that boasted about its new encryption methods. Named after the German encryption machine in World War II, Enigma’s mailing list, website, and Slack accounts were all hacked ahead of the company’s ICO. Hackers used Slack to reach out to investors about a fake early ICO. Some rightly called the email a scam, but many others pulled the trigger, and hackers made off with around $500,000 in Ethereum. Enigma CEO Guy Zizkind’s account was hacked, because he hadn’t set up two-factor authentication. This is a staggering mistake. Two-factor authentication is a common feature on wallets and exchanges, and is regularly emphasized as one of the most important things users can do to protect their coins. The CEO of a security-focused ICO neglecting this is comical. Many prospective investors were scared off for good.
3. DROPLEX
Thankfully for investors, many ICOs barely even put effort into appearing legit. Droplex was a lazy scam attempt that was quickly called out. Droplex’s whitepaper was a carbon copy of QRL’s whitepaper. Literally word for word, but with “Droplex” substituted for the word “QRL.” College kids put more effort into plagiarizing. Droplex’s Github repository was also a direct copy of QRL’s for a while. Once people became aware, they changed it, but they’ve added no new code in months. Fortunately, Droplex was lambasted early and often, and they only made off with around 25K.
4. COINDASH
Another prominent recent hack occurred when someone boosted a$10M off of CoinDash, an Israeli company. The hacking method is uncertain. Some sources speculate the hacker created an identical website to the team’s. Others think he or she simply changed the payment address, to divert funds. Either way, the hacker netted a huge sum. CoinDash had previously raised around 6.4M, so they aren’t totally broke. And the company nobly pledged to send tokens even to those who had donated to the fraudulent address. But it was just another reminder of the risks of ICOS, with many furious investors accusing the company of pulling an inside job.
5. VERITASEUM
Stop me if you’ve heard this one before; an Ethereum-based ICO was hacked under dubious circumstances. Veritaseum had red flags before hackers jacked $5.4M from the company. The coin claimed to be a peer-to-peer personal banking service. Investors who balked cited the team’s sketchy website, and its paid promotion by YouTube accounts. An extensive Reddit thread poked numerous holes in the team’s technology. The hack itself couldn’t have been sketchier. The team has been shady about how exactly it occurred, mentioning “social engineering” and an unnamed corporate partner who was negligent. A large amount of VERI tokens were stolen, and traded for Ethereum. The flash liquidation by the hacker boosted the price of VERI, and someone cruised to a large payday. Many investors and non-investors alike blasted the Veritaseum team, accusing them of pocketing the funds and claiming a hack. In the Wild West of crypto, there’s no way to know for sure. But it’s an unfortunate situation no matter how you sliice it.
6. PARITY
Most crypto investors know to keep their coins in a wallet, and not on exchanges. But sometimes even that doesn’t help; a hacker exploited a vulnerability in Parity’s Multisig Wallets, netting $30M. Using a flaw in the code and a two-step process, the hacker cracked what was thought to be a safe wallet. The hacker took Ether from multi-signature wallets containing funds from Edgeless, Swarm City, and Aeternity, three other projects. Fortunately, heroic “white hat” hackers were able to track down and return most of the stolen Ether to their rightful owners. It’s still early days in the crypto world, and this won’t be the last wallet hacked, but hopefully it’s a learning experience.
CONCLUSION
Some ICOs are blatant scams (looking at you, OneCoin). Others fail despite the best of intentions. And still others fall prey to hackers. It’s a time of great opportunity for crypto investors, but also one of great danger. As always, #DYOR.
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