Nearly a decade ago, a mysterious online persona by the name of Satoshi Nakamoto launched the domain bitcoin.org. The emergence of this technology paved the way for the cryptocurrency market, shifting the finance world in a completely new direction.
In its short and sweet timeline, the crypto industry has already faced a lot of bumps in the road and the recent trends suggest that things will continue to get tougher for new companies breaking into the scene. Even though the number of initial coin offerings (ICOs) has exploded in recent years, it was reported that over 1000 crypto projects failed in 2018 alone.
Only a select few companies have been able to find success through the trends, fluctuations, and uncertainty surrounding the crypto market. Even though there are many factors that may contribute greatly to the outcome of a company’s efforts, proper conduct of operations and excellent asset management skills are still the defining factors for its success.
With these things in mind, the next question arises: How and why does a cryptocurrency fail in the first place?
What Causes Cryptocurrencies to Fail?
- Poor ICO Execution
Did you know that most currencies are valued lower than when they first had their ICOs? Recent reports indicate that more than half of token projects cease their operations within four months of their initial start.
At first glance, new tokens may seem like a no-brainer investment due to the great publicity and the large funding they receive. But when operations officially start, most cryptocurrencies face unexpected difficulties that put operations at risk.
“Hype” is a dangerous thing that can blindside even the smartest of individuals.
Take DOGECOIN as an example.
A cryptocurrency that started off as an internet meme suddenly became backed by a strong community. Fair enough, its investors were able to engage in the conduction charitable projects such as sending the Jamaican bobsled team to the 2014 Winter Olympics. But when the value of DOGECOIN’s exchange dropped, its owner went off without a trace disbanding the community and company.
Despite the negative example, let’s still give ICOs the benefit of the doubt.
A big reason for the high failure rate could also be caused by the recent drop of value in the crypto industry. But despite the volatility of crypto assets and the current trends of the market, incorrect handling funds and lack of proper management is still the main reason why companies are unable to grow and maintain their tokens.
- Bad Market Perception
Similar to how people view investing in stocks and mutual funds as a means to get rich quick, the crypto industry is also experiencing the same stereotypical dilemma. Don’t get started on the wrong foot. Unlike stocks that present a better opportunity for sustainable earnings, crypto should not be a primary source of income.
As stated in an article by Forbes, the cryptocurrency paradox is effectively hindering the operations of the market.
“Crypto has value based on its usage to buy things, but because of that value most owners of Crypto to not want to use it. Crypto isn’t used when making transactions and has relatively minimal use.”
What we can take away from this is that the circulation of money is the foundation of a healthy economy.
In the case of the crypto economy, most investors in the crypto market do not want to use their crypto assets for the sole reason of letting it accrue value. While the intentions of these investors are good, the outcome of their behaviors says otherwise.
Simply put, if there aren’t enough people who are circulating their crypto assets, its value will not go up.
The market won’t function to its full capacity without a number of good investors.
Without the presence of an agency solely in charge of registering ICOs, anyone (even those who lack knowledge and training) can start their own company. With coins seemingly appearing out of thin air, a lot of people are becoming skeptical about entering the industry.
Placing hard-earned money on an investment with no guaranteed gains is scary enough and the risk of getting scammed isn’t helping. Don’t fall for the “get rich overnight” promise. Doing so can lead to unrealistic expectations, bad decision making, and eventual disappointment.
Here’s a tip!
Scammers may not be easy to detect but learning from the mistakes of failed companies can help you identify red flags with ease.
Before you start investing or start trading, taking the time to search for reviews will tell you a lot about a company’s credibility. While reviews may not give you the whole picture, the experiences of users give you a sneak peek on what it’s like to work with them.
- Hackers and Technology Issues
Regulators are continuously developing more procedures to monitor and regulate exchanges because companies must be responsible for the safety of their investors’ assets. While hacking a blockchain may be a difficult task, it doesn’t mean they’re invincible. The biggest failure in cryptocurrency history can attest to that.
Let’s take the hacker case of the Decentralized Autonomous Organization aka the DAO.
For years, crypto enthusiasts have been waiting to purchase DAO tokens. When the sale began, it marked the biggest funding in crypto history, collecting $168 million in just a few months. DAO investors enjoyed its success in the market, but it didn’t last very long.
A hacker found a vulnerability in their smart contract and was eventually able to drain a total of 3.6 million ether (roughly around $70 million dollars) from “protected” accounts. In fear of losing their assets, investors decided to let go of their tokens, resulting in the loss of its value.
While Ethereum was able to conduct countermeasures to salvage whatever they could, the incident has caused a large dent in the credibility of the company and the crypto industry as a whole.
Wrapping Things Up
A smart man learns from his mistakes, but a wise man learns from the mistakes of others. When it comes to educating oneself, analyzing failures is just as important as studying success stories.
Cryptocurrency has been around for quite some time now, but it’s still in its infancy stages. While it is yet to reach full stability, notable personalities and experts across the globe still believe in the technology’s potential. However, with its unpredictable nature, it’s necessary to be informed about the latest happenings of the industry the moment they arrive.
For more information and news on the latest trends of the cryptocurrency market, check our blog out so you never miss a beat!