How Many Cryptocurrencies Have Failed?
Cryptocurrencies don't seem to be running out of steam anytime soon. Even in the bear market of today, long-term holders and crypto maximalists swear by the digital assets. While many see the volatility as too much of a risk, many see this as an opportunity to invest in them when the market is low.
Major cryptocurrencies like Bitcoin and Ethereum have seen a massive downslide, with both falling more than 70% since their all-time highs. For established coins like these, the downturn is a massive hit, but they do have a tendency to bounce back.
Not all coins and tokens are so lucky.
Why do Cryptocurrencies Fail?
The crypto sphere is a Wild West and an equivalent of the Gold Rush. There have been thousands of digital assets created over the years. Many have faded and died. So why do cryptocurrencies fail?
Let's have a look at the most common issues that lead to their death spiral.
Excellent Coders, Bad Businesspeople
One must understand that cryptocurrencies are a product of engineering and coding, not finances. Most crypto creators are programmers and developers. What they excel at is creating tokens and platforms, but lack experience in running a business.
This leads to a host of issues, from managing the operations, proper marketing or simply being unable to get their message across to users. The results are projects that may have good intentions, but the management is unable to handle them.
Crypto For The Sake of Crypto
The term FOMO (Fear of Missing Out) applies not only to crypto enthusiasts but crypto creators too. The crypto industry is full of success stories and creators jump on the bandwagon to cash in on the meteoric rise.
This has led to the explosion of the market, with several cryptocurrencies popping up just because they can. The team lacking a clear reason for the coin's existence or having a PoD (Point of Difference) that separates their token from the myriad of others quickly reduces the usability. Having no benefit over their competitors, cryptos with a weak plan or not being able to attract a sustainable following are doomed to failure eventually.
Then there are cryptocurrencies that have no practical value at all and just fizzle away after the initial public excitement fades away (memecoins are a good example).
This leads to the next major issue. Vitalik Buterin's Ethereum was a turning point in the crypto industry that allowed anyone to create a token system and launch it, piggybacking on the Ethereum mainnet. Without the need to code a completely new blockchain ecosystem, this has resulted in hundreds of thousands of cryptocurrencies being launched over the years.
Rival blockchain networks such as BNB Smart Chain, Solana, Tron, and second-layer solutions like Polygon have only fueled the population increase.
This has led to an extremely overcrowded market with hundreds of thousands of tokens. The fierce competition simply means that many projects fail to grab enough attention and users to survive.
Scams and Rugpulls
Riding the wave of crypto excitement is the element of bad actors. With massive public interest in digital tokens, people with malicious intents cash in on it.
Ponzi schemes, crypto scams, frauds, and rug pulls are rampant in the industry. Tokens are launched, claiming to be the next big thing. ICOs (Initial Coin Offering), IDOs (Initial DEX Offering), and other token generation events are marketed heavily to attract retail investors who are roped into buying a coin or token that makes claims of massive gains, only to be hollow promises as the team runs away with the investors' money, leaving them with worthless assets.
Amidst this excitement, it's crucial to stay vigilant and educated to safeguard your investments from potential loss.”
Bad intentions, weak management, and a shaky atmosphere aside, many good projects also meet their maker even when they have the best of intentions. While tokens and coins are secure, other factors such as vulnerabilities in the wallets, phishing, social engineering, and weaknesses in smart contracts do create situations where outsiders can tap into the liquidity or other means to drain the projects and swap the assets anonymously.
This leads to a crash in the token's value, leaving them in the dirt.
Cryptocurrency Failure: How Many of Them Crashed?
Answering this question is a little tricky. With the number of cryptocurrencies created over the decade and a half existence, it is difficult to keep track of all. However, some different platforms and firms try to do so.
According to one estimate, the previous 2017/18 crypto boom saw more than 90% of cryptocurrencies fail. This included 80% scams and the rest 10% being honest cryptos that failed due to several reasons. One dead coin tracker lists nearly 2,500 cryptocurrencies so far.
If we take the 2500 failure figure and pit it against a total of 9400 “tracked” cryptocurrencies by CoinMarketCap, the figure is an astonishing 26% over the last 11 years.
How to Avoid Buying a Coin That May Die
Cryptocurrencies are a new class of financial and economic system that throws nearly all established rules regarding currencies out of the window. There is no sure-shot way of defining which crypto will survive the next decade, year, or even a month from now. Take Terra Luna as an example. A highly successful $40 billion worth of ecosystem collapsed after a critical failure in a span of a few weeks.
While the future is the greatest unknown, there are ways through which one can reduce the risks of investing in cryptocurrencies that may die.
First, never give in to your emotions. Have a detailed look at the project and the crypto's history. Are the developers well-known in the industry? Is the project audited by a reputable agency? Visit different discussion groups on Discord and Telegram to see what industry experts have to say about the coin itself.
Don't forget that your due diligence is just one part of the game. Protecting yourself from external bad actors (especially when hacks, social engineering, and phishing are increasingly common today) is purely on you. The best way to do so is to always ensure that your devices are up to date and you are running the latest version of antivirus software. At the same time, try to mask your activities from malicious actors as much as you can. One good way is to use a secure VPN. VPNs can not only encrypt your communications but also protect you while crypto trading, giving you an additional layer of security.