Initial coin offerings (ICOs) — one of the fastest-growing ways for cryptocurrency start-ups to raise money — are "absolute scams," Wikipedia founder Jimmy Wales told CNBC.

ICOs are a way for start-ups to raise money by issuing a new cryptocoin, while users pay them bitcoin or ethereum. It's similar to crowdfunding but with digital money. This year, start-ups have raised $2.4 billion from ICOs, according to data website Coindschedule.com

Wales however cautioned investors from participating in ICOs calling them a scam.

"I think blockchain is a super interesting technology but there are a lot of fads going on right now ... There are a lot of these initial coin offerings which are in my opinion are absolute scams and people should be very wary of things that are going on in that area," Wales told CNBC in an interview on Wednesday.

ICOs are unregulated and do not provide protection to investors in case of fraud or loss. In September the People's Bank of China declared ICO's illegal and have banned them. South Korea have since joined the backlash against ICO's and has banned them as well. The U.S. Securities Exchange Commission recently charged two companies running ICO's with fraud and selling unregistered securities.