Why Do Some Cryptocurrencies Fail and Others Succeed?

When Bitcoin came on the scene, it didn’t immediately get the recognition it needed or deserved. But the underlying concept of Bitcoin is like a seed that can’t be buried, and as you know already, it soon blew up – along with thousands more cryptocurrencies it inspired.

The crypto spirit and environment is so laissez-faire that anyone can create what they consider to be the next best cryptocurrency at any time – with pretty much zero barriers. In the past 10 years or so, we’ve seen countless cryptocurrencies come and carve out a tidy space for themselves. Still, we’ve seen many others come and go the way of the dodo. What makes the difference between such projects? Why do some crypto projects fail, and others succeed?

Cryptocurrencies That Have Failed

As of January 2021, nearly 1900 cryptocurrencies have failed, according to Coinopsy. That’s a lot of failures in a span of a decade. In a way, it shows how fiercely competitive the space is, and at the same time, the sheer amount of innovation that the industry inspires.

Deadcoins.com, another site that tracks this kind of thing classifies dead coins into either ‘deceased’, ‘hacks’, ‘scam’, or ‘parody’. When it comes to parody and scams, the end result is not entirely unexpected. But no developer comes up with a cryptocurrency expecting it to see its demise. Broadly, failed cryptocurrencies are those that have either extremely low trading volumes or have experienced a devastating drop in price that they haven’t recovered from.

That said, what are the factors that lead to the failure of some cryptocurrencies, while others succeed?

#1. Utility

Many cryptocurrencies enter the scene with pomp and fanfare only to fade out later when it turns out they don’t have an actual working product. On the other hand, we have cryptocurrencies that quickly rise to the top for having just one strong use case. Witness Chainlink, which launched only 3 years ago but has already catapulted to the top 10 in market cap – leaving in the dust thousands of projects that existed for longer. Part of this success is attributable to Chainlink’s ingenious and first and only one of its kind use case of connecting the blockchain to the external world via the use of ‘oracles’.

Now, oracles are third-party tools that feed real-world data – whether it’s stock market numbers to election results, to vaccine news, to blockchain-based smart contracts. This grants blockchains the ability to interact with each other rather than exist in isolation. When blockchains exist this way – with each in its own island – it inhibits their capacity to achieve their maximum potential. Chainlink’s working product is such a hit that it’s now utilized by countless DeFi protocols including Ampleforth, Celsius, Synthetix, Aave, Arbol, Nexus Mutual. Even Google has employed Chainlink’s oracle smart technology.

#2. Community

Believe it or not, a cryptocurrency’s user community or lack of it, can determine whether it thrives or unravels. No crypto project illustrates this like Dogecoin – the self-styled “fun and friendly” cryptocurrency. Launched in 2013, Dogecoin began as a joke – a satirical take at the then quickly proliferating altcoins. Today, however, the crypto is the furthest thing from a joke. That’s because it has the most passionate user base ever seen in cryptoverse. Dogecoin fans, who call themselves Shibes in tribute to the Shine Inu dog which inspired the coin, use the phrase “1 DOGE = 1 DOGE” to promote its use as a day-to-day transactions currency, rather than for it to be just a speculative asset.

DOGE ranks at #43 in the market today, which is saying something for a currency that began as a meme. This July, the community pushed for the crypto in viral Tiktok videos, which led it to spike over 30%. Searches for “how to buy Dogecoin” went up to 100%, the highest possible metric for Google searches. The developer part of the community also refuses to let the crypto die. All these efforts speak to an exceptional user community that pumped the growth of a ‘joke’ currency to mainstream crypto status.

#3. Security of the Network

A cryptocurrency can start strong and with a promising use case only to crash and burn due to security issues. The DAO token, launched in 2016 to oversee operations of the DAO is one of such. Though not a cryptocurrency per se, the DAO was an organization based on Ethereum’s blockchain – complete with its own token – that was going to be an automatic and decentralized venture capital fund.

The DAO had caught on like wildfire, going on to raise up to $150 million from more than 10,000 participants in just a month in what was the biggest crowd sale at the time. However, it seems the project was big on marketing but not so much on security. The project was brought down by a hacker who managed to siphon off $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-ever intentional DAO (decentralized autonomous organization) ever to exist. (We say deliberate since in actual sense, Bitcoin was by default the first DAO).

#4. First Mover Advantage

Look, to be the pioneer cryptocurrency of a particular innovation nearly always gives a project an edge. Think of Ethereum, which was the first crypto project to support smart contracts and decentralized applications (DApps). Now countless other projects such as Vite, Cortex and Chromia have mushroomed claiming to support those capabilities even better. The thing is, these projects possess superior functionalities that improve the smart contract experience both for developers and users.

For starters, Vite employs a technology piece known as a Snapshot Chain to optimize speed. Cortex re-imagines the whole idea of smart contracts by incorporating AI models, while Chromia deploys a ‘relational blockchain’ to create a smart contract solution that appeals to the real world. These crypto projects have gone the extra mile to improve the smart contract idea – but they still have nothing on Ethereum. Vite, Cortex and Chromia currently rank at #656, #387, and #534 in the market, while good old Ethereum, despite struggling with issues like scalability and speed is still the second favorite cryptocurrency network after Bitcoin.

Final Thoughts

The cryptocurrency space is fiercely competitive. For that reason, you’ll have projects that pull ahead while others limp along or completely fall off the wagon. It really all comes down to the basics, like their value proposition, dedication (or lack thereof) of the community, their resilience against attacks, and whether or not they have the clout of being the pioneer. That’s just the nature of the game. But let’s look at the positive side – this weeding out kind of leaves only the best, which is how it should be.