About 10 percent of funds raised in initial coin offerings in 2017 were stolen by hackers, according to newly published research from global accounting firm Ernst & Young LLP.

The research, which studied 372 ICOs in 2017, found that although the amount of funds raised via ICOs is approaching $4 billion — twice the volume of venture capital investments in blockchain projects — a surprising amount of it is walking out the door.

As the volume of ICOs draws hackers’ attention, the research noted, “more than 10 percent of ICO proceeds are lost as a result of attacks.” The research claims that about $400 million out of the $3.7 billion in funds raised via ICOs to date had been stolen, with hackers making off with the funds through a multiple number of attack vectors. Surprising no one who follows cybersecurity, the most popular method for hacking a company with an ICO was identified as phishing, which involves impersonating someone the target knows to get information to aid in the attack.

The researchers didn’t hold back in their cynicism about many ICOs, saying that there “no business need for many of the utility tokens being offered,” a somewhat more polite way of saying that many of the ideas pitched in ICOs are complete rubbish. Valuations in ICOs are also said to be based on FOMO, or a “fear of missing out.”

“The typical ICO has no customers, no revenue and in most cases, no working product,” Ernst & Young said in a statement. “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.”

Other highlights from the research include the finding that slightly less than a third of ICOs in 2017 accounted for 87 percent of the total funds raised. Ethereum also was identified as the most popular token platform, with a 70 percent market share. Yet another finding: Network congestion has become an increasing problem as more ICOs come to market.

“It’s clear that blockchain is already having an impact on many business topics beyond cybercurrency,” said Greg Cudahy, leader of Ernst & Young’s Global Technology, Media & Entertainment and Telecommunications practice. “However, the debate remains with currency usage itself, which began with the rise of blockchain in the first place. Once new standards are in place that are accepted by all participants — allowing for improved transparency, fraud prevention, and legitimacy — the protection of investors and users alike has a greater chance of success.”

Photo: Pixabay