Failure and success of cryptocurrencies
Several cryptocurrencies have been launched in recent years, often with very high expectations. Many of them failed soon after being snubbed by traders. According to Coinopsy.com, a crypto information provider which keeps track of crypto failures, 1,085 digital coins have already failed. A considerable figure, compared to the 3,000 currencies still alive and kicking. Many experts predict that many of these will fail.
Why do they fail? It is natural to expect that many initiatives have difficulties in a newly born market. The dotcom bubble of the 1990s is a perfect example. Yet, cryptocurrency developers have spent too little time designing the business use case for their coins and tokens, realizing only after the launch that their idea is yesterday’s news.
Many cryptos are only a copy of a previous successful one. Many of them wished to replicate the Bitcoin success. However, the market already has Bitcoins, and continues to be requested. No doubt this kind of developer error will continue. Here are some other topics that Gavin BrownRichard Whittle believe may have an impact on future cryptographic failures.
In 2008, the famous white paper that started Bitcoin success was released. On the wave of this success, other developers launched altcoins and tokens. Many of them were organized in small teams, often libertarian-oriented ones, who aimed to change traditional finance and reduce the role of central banks and their monopoly of money issuance, proposing decentralized currencies outside of the control of the monetary policy authority. Paradoxically, a few years later, these developers were assimilated to the large financial institutions that once tried to challenge. Finance leaders have thus begun to carefully enter the cryptography business, institutionalizing cryptotrading with similar products and derivatives. Now we are in a phase in which only large financial institutions are able to generate profits from the business. It seems increasingly likely that the next revolutionary white paper will be generated by a global multibillion dollar company – an ironic turn of events, to say the least.
Many cryptos from humble beginnings will fail, simply because they lack the resources to compete with financial giants. In order for a cryptocurrency to be successful, in fact, two conditions are necessary: there must be a great demand for these currencies for transactional reasons and users must trust them. Consumers generally trust a currency or a token because of the underlying blockchain technology, the decentralized cryptographic accounting systems on which this industry is built.
This means that the basis on which the market judges whether a new launch will stop or fall is mainly its use case. There are currently altcoins that offer everything from new ways to finance web advertising to exchange units in the gaming world. But more generally, in a world where it is no longer sufficient to simply claim to have launched a better Bitcoin, the attention of the market has shifted towards stablecoin, or cryptocurrencies designed to avoid the high volatility of traditional cryptos, as they are pegged to fiat currencies or precious metals, encouraging users to use cryptocurrency for everyday purchases and sales, while offering a stable store of value for traders on the many cryptocurrency trades that do not trade in traditional currencies. Examples are USD Coin and Tether, both traded at 1 dollar. The fact that considerable financial resources and infrastructure are needed to make these currencies operational is again in favor of large institutions – for example, Facebook’s attempt to launch Libra.