This blog covers why cryptocurrencies will fail and how to prevent failure of cryptocurrencies.
The most cryptocurrencies projects fail. If we look at the market, only 95 out of over 5.000 cryptocurrencies have a trading volume of over 1 million dollars. Cryptocurrencies count as volatile, and low trading volume could push the volatile level even further.
Statistics from coinmarketcap.com.
Why are so many cryptocurrency projects failing?
The crypto market is expanding every day. In addition to that, every day, new currencies get released. However, nowadays, these cryptocurrencies have to be extra special because they have to compete against cryptocurrencies that have proven that their technology works. In addition to that, the other currencies are still developing new features for their coins and the other coins have to keep up with the others.
Some coins have good and exciting features but don’t have a good advertisement campaign.
For example, if a coin only gets traded on one or two exchanges, it represents that not a lot of people need the coin and only a few people support this coin. No matter how good the coin is, (most) people will ignore it and don’t even think that it has great potential.
In addition to that, if a coin doesn’t have a social media presence or a good website, investors will be a skeptic. The most cryptocurrency projects have only a standard website. In most cases, it works, however, if a coin wants to stand out, it has to have an excellent website.
If the project doesn’t have a social media presence, most people won’t even recognize that this coin exists. Furthermore, if people want help, they don’t know where to ask for help. For example, Energi, PIVX and Peercoin have an active Discord chat and developers could answer questions directly on Discord if people need help. They also announce updates or other important stuff on these platforms.
These Discord channels (or other social media platforms or forums) form a community. A community is the most important thing for a cryptocurrency project to be successful. If a huge community supports a coin, there is a great chance that more and more exchanges support this coin. This results in a greater trading volume and a more stable price. Despite the nature of cryptocurrencies being volatile.
Trading volume has another great advantage. Let’s say you want to trade 1 Bitcoin for 1 Ethereum. You go to an exchange and deposit your 1 Bitcoin to the exchange. Afterward, you make a sell order to trade your Bitcoin for Ethereum. However, if these market pair (Bitcoin and Ethereum) has a low trading volume, you would have to wait a long time until somebody trades with you.
The most coins are scams.
Because developers could easily say they don’t want to develop the coin anymore or they don’t have enough funds to develop the coin further. However, investors could easily identify a scam coin.
If a coin has a lot of pre-mined coins, it could be a signal that it is a scam coin. Premined coins are coins that go straight to the developers or founders of a coin at the beginning of a project. For example, if 20% of the maximum supply of a coin is pre-mined, an investor should be a skeptic.
Another great way to determine if a coin is a scam is the block rewards. A coin could bait miners and investors by offering a large block reward. Therefore, miners earn more and switch to mining this coin. However, the block reward of a coin shouldn’t be too high. If it’s too high, the price of a coin will decrease over time because miners need to sell coins to cover at least their electricity costs. In addition to that, inflation would result in a status where the market can’t keep up. The price would decrease even faster if the coin has a low trading volume.
There is the possibility that there is one address that owns 20%+ of all coins. People with a lot of money could own this address. Afterward, they could control the whole market. They decide when they want to crash the market or when they want to see an increase in the price of the coin.
Investors could check how the distribution is by searching ‘richest <coin> addresses’. There are always some websites that offer graphs and represent how the coins are distributed between all addresses. For example, in Bitcoin’s case, the richest address owns approximately 1.4% of all coins (source: bitinfocharts.com).
Bad copies of other coins
Another reason why a lot of cryptocurrency projects fail is that they are just copies of another coin.
Everybody in the world can make a copy of Bitcoin and other cryptocurrencies.
Because they are open source, meaning everybody could have a look at the source code.
Having an open-source project has some benefits but also some disadvantages.
For example, developers could easily add new features or fix bugs. In addition to that, new bugs get fixed faster because developers all over the world can fix them. However, most projects have a developer team that verifies certain updates and manage the implementation of new features.
Furthermore, bugs get discovered faster because everybody could look at the source code and experiment with certain things.
However, to be an open-source project also has its downsides. For example, attackers could use this code and test out certain attacks. Afterward, they can exploit vulnerabilities in the code. In addition to that, everybody could make a copy of Bitcoin because Bitcoin is under the MIT license (source: github.com). That results in people who just want to use the popularity of cryptocurrencies to scam people and make as much money as possible. However, this action harms the popularity of cryptocurrencies and could result in stronger regulations.
Further reasons why crypto projects fail
Some projects decide that they want to go another path. For example, the were many forks from Bitcoin in the past. For instance, Bitcoin SV, Bitcoin Cash, Bitcoin Gold, and Bitcoin Diamond. All their coins had a reason for a fork. Bitcoin Cash and SV didn’t like that Bitcoin only had a block size of 1MB. Therefore, the made a fork and increased the block size to 8MB.
They had a different vision of how the perfect cryptocurrency should look like. However, some coin projects could lose this vision and go another path or decide that they don’t want to develop a coin any further.
According to this article from theconversation, more than 1.000 cryptocurrency projects already failed.
However, one more failure doesn’t mean the end. Just the best coins win to provide a crypto user the best experience, performance, and the best features.
The crypto space already came a long way and it will continue to grow. It’s just the beginning.