Over 10% of initial coin offerings (ICOs) get lost due to hackers’ attacks, a research from Ernst & Young has found. The study also showed that in addition to losing ICO proceeds, investor personal data is at risk.
The research team looked into 372 ICOs between 2015 and 2017, amounting to $3.7 billion in funding. A total of around $400 million has been lost due to attacks. The report states that hackers are attracted by the rush and absence of central authority within the ICO market. The most widely used hacking tool is phishing, according to study.
Valuations based on FOMO
Unlike initial public offerings (IPO) in the stock market, ICOs are sold into the market before a business around the solution exists. While some very promising companies have managed to IPO prior to having profits, they almost always have revenues and customers on which it is possible to build valuation models.
The typical ICO has no customers, no revenue and in most cases, no working product. Often the only foundation for the ICO is a white paper that describes the planned technology and a small piece of software that governs how the tokens are issued and managed. Valuations based solely on a white paper are always going to be risky and extremely speculative.
The “Fear of Missing Out” (FOMO) drives token valuations without any connection to market fundamentals, according to the research.