As of January 2022, there are more than 8,000 cryptocurrencies, and their number continues to grow. This is primarily due to the fact that in the crypto space, anyone can create a new coin at any time and with virtually no barriers. Over the past 10 years or so, over 10,000 cryptocurrencies have been created. However, today their number is much less, as many have had to leave. So why do some crypto projects fail while others succeed?
According to the Coinopsy service, as of January 2021, about 1900 cryptocurrencies have failed. In a sense, this indicates the high competitiveness of this space.
The site Deadcoins.com categorizes scammed coins as “dead”, “hacked”, “fraudulent” or “parody”. When it comes to parodies and scams, the end result is unexpected. But no developer invents a cryptocurrency, expecting it to disappear. In general, failing cryptocurrencies are those cryptocurrencies that either have extremely low trading volumes or did not survive a market crash from which they never recovered.
However, what are the factors that cause some cryptocurrencies to fail and others to succeed?
1. Utility
Many cryptocurrencies enter the scene on a wave of hype, but then disappear when it turns out that they do not have a really working product. On the other hand, we have cryptocurrencies that quickly rise to the top due to having only one reliable use case. The Chainlink project, launched just 3 years ago, has risen to the top 10 in terms of market capitalization, leaving thousands of projects behind. Part of this success is due to the ingenious, first and only use case for blockchain through “oracles”.
Now, oracles are tools that transmit real data, whether it be stock market data, election results, vaccine news, or blockchain-based smart contracts. Thanks to this, blockchains can interact, and not exist in isolation. When blockchains do not interact, it hinders their ability to realize their maximum potential. Chainlink’s work product is so popular that it is now used in countless DeFi protocols including Ampleforth, Celsius, Synthetix, Aave, Arbol, Nexus Mutual. Even Google has used Chainlink’s intelligent oracle technology.
2. Community
Believe it or not, the presence or absence of community can determine whether it thrives or fails. Few can boast as much community support as Dogecoin, the self-proclaimed “fun and friendly” cryptocurrency. Launched in 2013, Dogecoin was created as a joke – a satirical take on the fast-growing altcoin. However, today this cryptocurrency is far from being a joke. This is because it has the most enthusiastic user base that has ever been seen in the crypto universe.
Today, DOGE is ranked 27th in the market. In July of this year, the community pushed for the use of cryptocurrencies in Tiktok viral videos, resulting in a rise of more than 30%. The number of requests for “how to buy Dogecoin” has grown to 100%, which is the highest rate for a Google search. The developer community is also refusing to let the cryptocurrency die. All of these efforts are appealing to the exceptional user community that has contributed to the rise of the “joking” currency to mainstream cryptocurrency status.
3. Network Security
A cryptocurrency can have strong and promising uses but fail due to security issues. The DAO token, launched in 2016 to oversee DAO operations, is one such token. While the DAO was not a cryptocurrency per se, it was an entity based on the Ethereum blockchain – complete with its own token – that was meant to be an automated and decentralized venture capital fund.
The DAO lit up like wildfire and raised up to $150 million from over 10,000 members in just a month in what was the biggest sale to date. However, it looks like the project had good marketing, nothing more. The project was hacked by a hacker who managed to withdraw $50 million worth of ETH. The DAO token was promptly delisted from major exchanges, including Kraken and Poloniex. Had it been successful, the DAO would have been the first intentional DAO (Decentralized Autonomous Organization) ever to exist.
4. First Mover Advantage
Being a pioneer in the field of cryptocurrencies of a particular innovation almost always gives the project an advantage. Take, for example, Ethereum, which was the first crypto project to support smart contracts and decentralized applications (DApps). Now there are countless other projects like Vite, Cortex and Chromia claiming to support better features. The fact is that these projects have excellent functionality that improves the work with smart contracts for both developers and users.
For starters, Vite uses a piece of technology known as the Snapshot Chain to optimize speed. Cortex is reimagining the whole idea of smart contracts, including AI models, while Chromia is deploying a “relational blockchain” to create smart contracts that fit the real world. These crypto projects have done their best to improve the idea of smart contracts, but they still don’t have anything on Ethereum.
It really comes down to the basics, such as their value proposition, the dedication (or lack thereof) of the community, their resilience to attack, and whether they have first-mover influence.
