Why are ICOs a sweet target for Hackers? ICO security issues

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Initial Coin Offerings have become a vital part of the cryptocurrency world. An ICO is a great way to finance a startup, to raise capital for a project and to make that project happen. They operate similarly to the way companies list themselves in stock exchanges – through Initial Public Offerings. Last year it was reported in August that cybercrime has increased with the increasing popularity of Ethereum.

This is because of the smart contract platform that Ethereum offers. It allows developers to create their own decentralized applications on the Ethereum blockchain. Because of these smart contracts transactions can’t be reversed or traced, making them a soft target for hackers. If you want to learn more about ICOs and the concept behind them, you can read our Initial Coin Offering guide.

Why ICOs?

ICOs are developed through the Blockchain technology, mostly through Ethereum. It is estimated that more than 95% of all ICOs are made with the Ethereum Blockchain and smart contracts. With the increasing popularity of cryptocurrencies many big-name companies have realized the potential of the technology.

Some of these companies are even trying to enter the cryptocurrency market or to issue an ICO to gather capital for various projects. Also with the popularity of these ICOs a lot of investors are looking for the next best investment to make. But when there are large amounts of capital there is also interest from criminals. The stories of hacked ICOs increase as more and more ICOs are able to raise large amounts of capital.

In an effort to attract investors many cryptocurrency companies that launch a blockchain coin are focusing primarily on the marketing aspect. They invest their money on promoting the project through ads and referring. A lot of the newly found crypto companies are interested to raise the capital from the ICO, not to protect themselves and investor’s money from hackers. Not all of them concentrate on the security side which is a big part of the whole concept of cryptocurrencies.

What are the reports?

According to a recent report by Fortune more than 10% of the raised capital from ICOs between 2015 and 2017, has been stolen by hackers or lost forever. A rough estimation tells us that more than 400$ million have been stolen by hackers.

Companies are focusing on the capital that they want to raise and to attract investors. Some of them just don’t care for the necessary security of the investor’s tokens.

A report by Ernst and Young more than 3.7$ Billion was raised between 2015 and 2017 by 372 ICOs. Every ICO gathers different amount of capital, some more and some less. But an average of this sum means that every ICO raises an average of 10$ Million. This is a record amount for startups and it is not surprising that ICOs are a juicy soft target for hackers.

“Hackers are very attracted by the rush and the absence of a centralized authority, blockchain transaction irreversibility and informational chaos” stated the paper. “Project founders focus on attracting investors and security is often not prioritized. Hackers can successfully take advantage of this and makes them an attractive target for attacks.”

If you search the Internet there are too many stories about ICOs and cryptocurrency platforms that are being hacked. As the report stated there are too many investor funds that are being hijacked. Security should be a main priority in this still developing industry. Stories about theft and scams can compound giving a bad name for the whole industry. If you want to read about the biggest scam of 2018 click this article.

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About Peio Purlev

I write articles on cryptocurrency and blockchain-related news, comprehensive guides about cryptocurrency projects and blockchain technology, and also price analysis articles.