Dash it! USD$7.9M diverted from Coindash Token Sale by hackers minutes into the sale

Michael Bacina
Jul 18, 2017 · 3 min read
Hackers targeted the weakest link: the website

Coindash, like many other companies operating in the cryptocurrency space, had geared up to make a Token Sale / Initial Coin Offering to those wishing to invest in Coindash tokens.

Broadly put, Token Sales operate by a company providing a wallet address to which those wishing to purchase tokens send cryptocurrency. The tokens then issued are often traded on exchanges (such as Coincheck or in Australia Coinspot)

By virtue of the nature of cryptocurrency transfers, there is no way to reverse the transactions made moving cryptocurrency from one wallet to another.

The Token Sale opened without any difficulties, but minutes later Coindash announced that their website had been hacked.

The legitimate wallet address for Ether to be sent to had been replaced with the hacker’s address. While the transactions can be traced through Etherscan to see where the money is going, there is no way to get it back. Below is the report from Etherscan for this address at the time of publication showing USD$7.9 million in the wallet from 2134 transactions:

Interestingly, a fake twitter account (@Coindash_ico) was set up which also promoted the Token Sale. Others online asserted (without evidence) that the theft was an inside job or a conspiracy to defraud potential investors.

Coindash’s response

Coindash ultimately only received USD$6.4M of Ether under their Token Sale, which is still an impressive sum to raise. Coindash has agreed to provide tokens to all those who paid funds, but had those funds diverted.

It remains to be seen what impact the theft will have on the price of the tokens once they are trading on exchanges, given that the theft shines a light on what can only be described as poor security on the part of Coindash.

Coindash published the following update on their website:

Next Steps

This situation underscores the critical and significant risks of companies looking to make a Token Sale offering taking into account not just the significant regulatory risks inherent in offering something which in many cases looks very much like a security, but also the security that is needed when millions of dollars are at stake and diverted very quickly.

Despite these risks, more money has flowed into Token Sales this year to nascent start-ups than from venture capitalists.

Disclosure: The writer acts for and advises cryptocurrency focused businesses, and holds a variety of cryptocurrencies including Ether but is not an investor in Coindash’s token.

Michael Bacina

Written by

Technology Lawyer with a focus on Blockchain and FinTech/RegTech, former developer, advisor to projects driving adoption of Blockchain and DLT

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