Millions of Dollars Go AWOL After a Disastrous CoinDash ICO

The people behind an Israeli startup called CoinDash had a brilliant idea. They wanted to create a platform for cryptocurrency traders that also acts as a portfolio manager and a social network which is supposed to give users an idea of where the market is going. The problem, as with many other startups, was money. They could have gone the traditional route of looking for angel investors or borrowing money from a bank, but they decided on a more modern approach – an Initial Coin Offering (ICO).

An ICO is very similar to an Initial Public Offering (or IPO). The main difference is that instead of actual money, the people participating in the ICO pay with cryptocurrency (Ethereum in the case of CoinDash), and instead of company shares, they get special tokens that, if everything goes according to plan, could be really valuable one day. The other difference is that an ICO is much easier to organize than an IPO. All a company needs to do is point its supporters to its cryptocurrency address and start collecting the money. There are no filings, approvals, or regulators checking whether everything is legal.

CoinDash's preparation for its July 17 ICO involved quite a lot of horn-tooting. A Hollywood blockbuster style poster was created, a countdown clock was placed on the company website, and everyone seemed very excited. Then, it all went horribly wrong.

Mere moments before the offering began, someone tampered with CoinDash's website. The Ethereum address that belongs to the company was swapped with one that is controlled by an unknown individual. Predictably, investors had no idea what had happened, and they merrily sent their money away, thinking that it's in good hands.

A few minutes later, CoinDash employees took to forums and social media saying that the website had been hacked, and used all caps and bold to tell people to stop sending their hard-earned ethers. Shortly after, the website was taken down.

Despite what looks like a quick reaction, whoever changed the address made off with a rather fat paycheck in his pocket. At the moment, the rogue address has just under 43,500 ethers in it which at the current rate amounts to a staggering $10.1 million.

There are no chargebacks in the world of cryptocurrencies, and because it's all anonymous, there's no way of knowing who controls the rogue address. In other words, investors will most likely never see their money again. But who's to blame?

This, unfortunately, is unknown. Lots of fingers are predictably pointed at CoinDash. Some people say that the company failed to secure its website properly. Others reckon that the whole "hack" is actually an inside job. The company itself is seemingly trying to retain some of its integrity, and in an announcement, it said that people who inadvertently sent money to the wrong address will receive the tokens they deserve. According to members of the community following the ICO, however, these tokens will be worthless because of CoinDash's ruined reputation and because of the fact that the money that was supposed to fund the development of the software is now in someone else's hands.

Whether the site was hacked or whether the whole ICO had been planned as a hoax from the very beginning is unknown. The incident can teach us something, however. If a place where money is exchanged isn't regulated in any way, innocent people are bound to end up with empty pockets sooner or later.