Although ICOs have been mostly replaced by IEOs and other fundraising methods over the past few years, there are still many projects that raise money in this way. Due to the high level of interest among investors and the lack of solid regulation, ICOs serve as honeypots for scammers of all sorts.
The report released by CipherTrace in May 2021 reveals that major crypto thefts, hacks, and frauds have reached the amount of $432 million this year already with DeFi related hacks making up more than 60% of the total volume. By investing in DeFi projects, ICOs based on Bitcoin, Ethereum, or any other blockchain, investors bear high risks hoping to get huge rewards in the future.
CipherTrace: DeFi hacks in April 2021 have already surpassed the previous year
Another report released by Federal Trade Commission shows scary statistics of skyrocketing losses that cryptocurrency investors have experienced over the past 2 quarters.
Federal Trade Commission: the losses of cryptocurrency investors have gone parabolic over the past few months
In this article, we are going to review the biggest ICO scams that took place in 2020 and give some advice on how you can avoid them.
Biggest ICO scams
ICO scam campaigns often concoct fictional executives who have imaginary credentials and devise fictional partnerships with big names.
That is exactly what a Miami-based cryptocurrency firm Centra Tech did when it named Mastercard, Visa, and Bancorp as its partners. The company had also demised a fake license to transmit money. After all these claims, the company managed to attract millions of dollars from its victims. First, the founders swindled 15 million USD and then the amount exceeded 60 million USD. Now its co-founder Robert Joseph Farkas is in prison.
Pincoin and iFan still remain the largest ICO crypto project among ICO scams. A Vietnamese cryptocurrency company Modern Tech managed to raise 660 million USD promising constant revenues to people investing in their tokens. Among the blockchain scam schemes, the exit scam is most widespread. This fraudulent practice was used in this case as well.
The notorious list of the largest scam companies includes Plexcoin, Bitcard, Opair and Ebitz, Benebit, Bitconnect, Confido, Ponzicoin, and others that swindled from 15 million USD to 200 thousand USD from trustful investors in the period between 2015 and 2018.
Another popular method of fooling the audience refers to impersonating celebrities. Thus, the research conducted by the AI-oriented agency Bolster claims that around 90% of all such scams were conducted under the name of Elon Musk. Other famous faces include John MacAfee, Bill Gates, and Yusaku Maezawa.
Finally, the sad story of 2020 can be finished by the long list of incidents summarized by the popular technology news portal Zdnet. Among the big names that have suffered significant losses are Poloniex, Helix, AT&T, Kucoin, GoDaddy, and many more.
Blockchain hackers’ attacks in 2020
However, not only ICO fraud is to blame for the loss of investors’ assets. Out of 5+ billion USD raised during 2017, ICOs lost from 7 to 10% of the funds due to fraudulent actions. In 2020, the figure is lower but still impressive. According to the Atlas VPN team, approximately 3.8 billion USD was stolen in 122 hackers’ attacks.
In 2017, the bug in the wallet code enabled the Ethereum hack when 30 million USD in Ether was stolen. In 2020, Ethereum DApps still remain the most luring among blockchain hacks. The number of successful crypto attacks on ETH DApps reached 47 in 2020 while the total number makes up 122 at the time of writing.
Atlas VPN: the amount of money lost due to blockchain hacks in 2020 defies imagination
Signs that ICO is a scam
How can we determine that an ICO is a scam? Look out for the following features that often become hidden signs of a scam project:
- No whitepaper or it’s very weak.
- The website doesn’t tell visitors about the team.
- The goals of the project are unclear, there is no roadmap on the website
- The pyramid structure is employed.
- A big number of pre-mined tokens. Too many tokens are distributed to the members of the team.
How to avoid ICO scam?
While the regulation is still weak, the only thing that you as an investor can do is to rely upon your vigilance. There is an open-source Ethereum Scam Database that helps to keep track of the existing Ethereum-based scams so users can always visit the resource to discover if the project enters the ICO scam list.
- Any project that does not publish the name of team members should immediately raise suspicion.
- Do not deceive yourself with the loud names of the advisors to the project. Most often they have no real influence on the project and its implementation.
- Never use an Ethereum wallet address sent by an unknown person. Use the information provided on the official ICO website.
- Experts recommend studying the ICO reviews thoroughly. Smart contract vulnerabilities are often employed by hackers, so one should check out smart contract audit performed by reputable companies to reduce the chances of a crypto hack.
- To make sure that the web application is reliably protected and the smart contract is written without errors, it is worth conducting audits for vulnerabilities with the help of a third-party organization such as Tokenguard.
- Stay alert on phishing websites which are, possibly, the biggest threat to cryptocurrency ICOs and potential investors. Such websites represent copies of real projects making it difficult for users to determine which site is official and which is not.
Follow these simple security practices and always check twice who you entrust your funds to.