New cryptocurrencies are launched every day and hit the news. Some Cryptocurrencies get a lot of attention while others fade in the background. In this article we’ll discuss that ‘Can cryptocurrencies fail?’ and how it happens.
Blockchain technology had allowed several creators to launch their own Cryptocurrencies. With a surge in the number of Cryptocurrencies, it’s natural to assume that some of them weren’t as successful as their more popular counterparts such as Bitcoin or Ethereum.
With this, we come to our question, Can Cryptocurrencies fail? And what causes them to fail.
Why do Cryptocurrencies fail?
Cryptocurrencies need active users to engage in the Blockchain network. If sufficient people engage in that Blockchain the Blockchain has a far better chance at success. If crypto fails to garner a decent number of users it’ll fail.
A Cryptocurrency will fail if it lacks miners due to bad marketing and technical glitches. Mismanagement of Blockchain and not enough transactions due to security concerns and poor financial reach can effectively kill a coin.
Since the inception of Bitcoin, over 2000 Cryptocurrencies have failed. The website Coinopsy has logged over 9 coins that have died this year. Many of the 2000 coins have died in the coin boom of 2016-2017.
List of notable coins that failed
Regarded as one of the biggest scams in history, created by Ruja Ignatova. It was a scam that used the Ponzi scheme to gain money. The coin even though failed has scammed people of close to $4 billion.
- Squid Game coin
Named after a popular TV series, this coin gained a lot of hype in the initial days. Many investors with great hopes invested their money on that coin. The coin initially saw phenomenal growth in value, but the reality soon revealed itself. The coin lost almost all its value in a matter of minutes and people lost a lot of their money. This type of scam is a pump and dump scam.
Following the famous or should I say the infamous Ponzi Scheme model, this coin was a scam. Launched in 2016, this coin grew rapidly. The marketing showed to give investors up to 1% daily growth. This was enough to lure a lot of investors. The coin hit its peak in the winter of 2017. After that, it fell apart. Just like other Ponzi schemes, investors lost a lot of money due to this coin.
How to identify a coin that will fail
It is close to impossible to precisely predict which coin will fail or will take off. However, one must look at the red flags to be wary of scams. Some things to consider when buying a new coin :
The white paper of the Cryptocurrency describes what the objectives of Cryptocurrency are and gives technical information to the investors about it. A well structured and elaborate white paper should be looked for when researching about the new coin.
Security is paramount when we talk about money. No investor wants to invest a sum of money on a coin, only to get it stolen by some hacker. This happened to the famous Cryptocurrency named DAO in 2016 when hackers siphoned out one-third of the DAO’s fund. DAO fell apart soon after. This explains why security is important when talking about cryptocurrency.
It’s natural to feel overwhelmed when a coin promises to give impossible returns. If it sounds too good to be true, most likely it’s not true. Fear of missing out plays a huge role in this. To get huge returns many investors make mistakes that cause them to get trapped in petty scams.
A Crypto user community having a good user community should be a good sign and will help in the long run. One such example of a good user community is the phenomenal rise of the DogeCoin. The coin was launched as a joke but quickly became one of the biggest names in the crypto world because of its community.
What good is illustrious crypto when it doesn’t promise a good product in the end? The utility is what makes some crypto rise to phenomenal heights. Chainlink is the best case study for this. With the unique use of ‘oracles’ that connects the Blockchain to the external world. Oracles can feed real-world data and allow the Blockchain to interact with each other. This unique state of the art technology has been used by several DeFi protocols.
Prediction of success or failure is really tricky and almost impossible. However, with smart guesses we can find the probability of success. Hopefully, with this knowledge, you can now get a better understanding of why Cryptocurrencies fail and how to avoid them that might fail.