Although initial coin offerings (ICOs) can be profitable for start-ups seeking funding, they are not without their disadvantages. Investors often face risks due to the lack of regulation.
In 2021, for instance, BitConnect, an offshore cryptocurrency lending program, had already scammed its investors out of over $3 billion. The company promised a 40% return on investment to the investors but ended up running a Ponzi scheme.
BitConnect has been the biggest initial coin offering so far.
According to the SEC (US Securities and Exchange Commission), “BitConnect was operating a classic Ponzi scheme that paid early investors with funds collected from later ones.”
In most cases, crypto scammers will convince ‘unsuspecting investors’ to purchase phony coins by moving either fiat currencies or cryptocurrencies.
Despite being relatively new in blockchain technology development, ICOs remain one of its most widely discussed aspects.
However, Initial Coin Offering has lost its relevance nowadays as it always provokes debates about whether it’s just a scam, a so-called bubble, or a progressive technique of money gathering for new, unique ideas.
To say that there were no ICOs that were successful and where people saw stunning examples of what may or may not change tomorrow would be unfair.
However, these projects are more like exceptions than rules. Find out which fraudulent ICOs negatively affected cryptocurrency trading.
We call a project a scam only when it has been proven that all the money that was collected during the pre-ICO or ICO was stolen and team members disappeared themselves. Thus, it can be concluded that this fraud was intentionally planned, and stealing investors’ money was done with a purpose.
By the way, if you lost money in any recent ICO scam (such as last year’s Fuku Coin, which scammed investors after listing on the exchange Mexc), we have ICO scam recovery experts available to help you recover your lost funds.
You can contact them here:
An Unpredictably High Number of Thefts
A study done by Statis Group, an ICO advisory firm, discovered that, as many as 80% of all initial coin offerings (ICOs) were scams.
The research examined the life cycle of ICOs launched in 2017 from the announcement of sale availability to the most advanced level of crypto exchange trading.
More than 70% of initial coin offerings (ICOs) investment (by dollar volume) went to higher-quality projects, but more than 80% of initiatives (by # share) were found to be scams. 3% of them “gone dead,” and 4% did not work out.
The study disclosed that the total funding of coins and tokens was $11.9 billion. However, eleven percent ($1.34 billion) of the total ICO funding turned out to be scams, with three main scammy projects as follows: Pincoin ($660 million), Arisebank ($600 million), and Savedroid ($50 million), for a total of $1.31 billion.
This means that while a huge number of ICOs were fraudulent, they received less money as compared to the entire business sector.
Over $370 million in ICO earnings have been stolen, which is over 10% of the total sales.
Ernst & Young (blockchain technology) in their research analyzed 372 ICO campaigns and found that every month hackers steal about $1.5 million worth of funds raised in these offerings.
This amount approximately accounts for 10% of all the money collected by various cryptocurrencies—around $3.7 billion was lost across the ICO projects.
One of the most popular theft cases was Coindash, where $7.9 million worth of Ether was stolen by hackers who left them with nothing in their wallets.
MDPI – a publisher of open access scientific journals – looked at scam ICOs and their impact.
They studied over 5,000 ICOs launched between August 2014 and December 2019. Out of those, they found 576 scams, resulting in a total loss of $10.12 billion. The biggest loss came from the ‘Petro-scam’, where investors lost $735 million. It’s important to note that the Venezuelan Legislative Assembly declared Petro illegal in 2018.
Let’s now look at some of the biggest ICO scams.
BitConnect (the biggest ICO scam so far)
BitConnect was a cryptocurrency platform that gained popularity for its lending and exchange services. It held an initial coin offering (ICO) in 2016 to raise funds for its cryptocurrency, BitConnect Coin (BCC).
Later, people realized it was a scam, resulting in a loss of $3.45 billion. This has been the biggest ICO scam to date.
OneCoin (a combined $4 billion loss)
OneCoin is an illustration of a classic Ponzi scheme in cryptocurrency. OneCoin raised over four billion dollars in investments and purchases between 2014 and 2016 for hopeful bitcoin enthusiasts.
Unfortunately, they soon realized that the OneCoin Exchange, their sole cashing outlet for the scheme, was closed down in January 2017.
Ruja Ignatova, the founder of OneCoin, went into hiding in 2017, while her partner Sebastian Greenwood was arrested by US authorities in 2018 and incarcerated. Konstantin Ignatova, Ruja’s brother, took over the business during her absence but he too has been arrested lately on charges of fraud and money laundering.
Pincoin ($870 million were stolen)
History shows many successful ICOs promising to generate millions of dollars scam investors who fell prey to this deceit, with Pincoin as a typical example.
With two ICOs raising up to $870 million, the firm abruptly disappeared, leaving over 32 thousand frustrated and confused investors who had put their money into its ventures.
A very shrewd developer created a cryptocurrency in 2014 and he gave it the equally fitting name PonziCoin. The aim was to create a kind of pyramid scheme where early investors would be required to bring more people to buy into this coin for them to make money.
However, he waited for individuals to invest in that particular crypto-currency, but then he ran away with about $7000, which is equivalent to $2.2 million today, without paying anyone.
It was originally intended as a joke. The website had a frank post that acknowledged it was a scam.
This, however, did not deter some investors from investing in the ‘product’.
Opair And Ebitz ($2.9 million were scammed)
The main offender in this cryptocurrency exit scam was Wasserman. This scammer managed to rob a total of 388 BTC, which has made a large number of investors desperate to find him.
This trickster was very successful at making his investors give him money through ICOs.
This ICO is built on the promise of a decentralized debit card system promoted by Opair using the token name XPO.
In the summer of 2016, they organized an ICO and were able to get away with 190 BTC. Later, it turned out that most of them had fake LinkedIn profiles.
Benebit was the most talked about ICO of 2017. They made an exit scam with a difference in crypto, which enabled them to defraud their investors of $2.7 million.
This was the largest crypto exit scam until 2018.
This fraud became known when individuals realized that the photographs of team members displayed on the website actually belonged to a page on a school site.
All team members then ran away, leaving behind only empty pockets.
ACChain (where $80 million were scammed)
ACChain, the prototype of an ICO scam, duped initial investors out of an impressive $80 million in a much hyped campaign. This company operated its business from Shenzhen, China, until recently, when its operations came to a sudden stop.
The offices of ACChain were caught by cameras as being empty with no single worker or even any office equipment so that anyone can tell where the investor’s 80 million dollars vanished to.
PlexCoin ($20 million/ 2017)
With the promise of a 1,354% return to Plexcoin investors within 29 days, this rip-off drew in investments totaling $20 million. It has been revealed that Dominic Lacroix, Yan Ouellet, and Sabrina Paradis-Royer were charged with making false statements, including a promise of more than 1,000 percent gain.
They stole the SEC’s $20 million; hence, they are accused of this offense. Following a grand jury indictment for securities and wire fraud, three plexcoin operators agreed to pay damages amounting to one million dollars each.
How do I identify ICO scams?
There are telltales that point to an attempt at fraud in a project. Some of them include:
- There is no whitepaper or it is too scanty.
- The website does not tell visitors about the team.
- The goals are unclear and there is no roadmap on the website.
- They use a pyramid structure.
- A large number of tokens have been pre-mined. They have issued many tokens for the team members.
- The team isn’t a well established or well reputed business.
Crypto market manipulation
It is beyond doubt that the lack of regulations in the cryptocurrency world presents a number of challenges. Market manipulation is one of these challenges.
Market manipulations are unfair practices used by ICOs to mislead traders and investors. It means to make trading look better than it really is.
For example, in ICOs, the founders would pump liquidity with numerous amounts of their own crypto tokens, making it look like this cryptocurrency was thriving. Fascinated, individuals would purchase these tokens using established cryptocurrencies such as Bitcoin and Ether. Thereafter, this currency’s promoters would simply take off with the money after cashing out from the liquidity pool.
There are numerous ICO scams within the crypto space and traders should be very careful now more than ever.