Scams in Crypto: 20% of ICOs, 5% of Twitter


Getting a wrap around just how much scamming and fraud there is in the crypto ecosystem is a challenge -- but not impossible. As the industry continues to put up impressive fund-raising figures (with new issues at about 2% of Ethereum market cap per month), just how much of this will become valuable projects? We've written before about how creative destruction is natural for startups, and that failure rates in the mid 90% are a reasonable outcome. We've also pegged hacking of Bitcoin and Ethereum to have been responsible for about 14% of money supply in those pools. But what about outright theft and lies?

Two ideas. First, the WSJ analyzed 1,450 ICOs and found that 271 or 18% of them are just total raw scams. Fake copied white papers, team member photos taken from stock photo websites, nothing behind the project but malfeasance. Yikes. And another version of the same was The North American Securities Administrators Association going after nearly 70 ICO issuers in a coordinated action of regulators across the US and Canada called "Operation Cryptosweep". Which is a totally sweet name, for what is a really regrettable but required clean-up of the crypto ecosystem. A 20% chance to lose your money, for no philosophically meaningful reason, is the wrong price to pay for good financial technology in our opinion.

And second, don't forget the propaganda bot armies. Sure, they can influence elections and spread misinformation, but we didn't expect that they would be used for financial warfare this quickly. The practice in question is copy-cat accounts on Twitter that look like a Twitter influencer claiming to give out free crypto currency, if only you send them money first. This is hacking of the human kind and we monkeys fall for it all the time. As a comparisons: (1) email phishing maxes out at 0.70%, according to Symantec, and (2) bot automation is at approximately 10% of all activity on Twitter. Given that the crypto ecosystem is more prone to Internet memes and bounty programs, we would expect the rate of phishing to skew higher, say up to 5% for crypto-related conversations. So watch where you point that digital wallet.


Source: WSJ (18% scams), NASAA (Operation Cryptosweep), Bloomberg (Bot PhishingHacks at 14%), Autonomous NEXT (Failure rates)