Top 10 reasons crypto projects fail
With investors, entrepreneurs and technologists flocking to the cryptocurrency market to make their mark, it’s inevitable that not all startups will be a success story. In fact, 92% of cryptocurrency projects have failed.
But why do they fail? Let’s take a look at some of the common reasons for the failure of new crypto projects.
One of the most common causes of failure is fraud. The explosion of ICOs over recent years has led crooked people to create fraudulent projects and dupe investors out of money. Some warning signs are plagiarized documents, guaranteed returns and fake or missing executive teams.
Some even resort to identity theft, ‘stealing’ the identity of someone with an online presence to prop up as the project leader. A recent investigation of 1,450 startups found 271 different deceptive tactics to try to fool investors.
Lack of technical expertise
Even if a startup team has the best intentions and a rock-solid idea, the project can fail if they lack a talented enough technical team. Many projects get mired down in the ‘idea’ stage, and never actually translate into a finished product.
Competitiveness in the crypto development job market contributes to this problem. There are plenty of opportunities for someone with good technical skills as the demand is huge, and the supply of talents is scarce. This makes it hard for projects to assemble a talented and experienced team.
Creating a solution that sounds great but is technically impossible to deliver is another failure point for new crypto projects. If it sounds too good to be true, it probably is — and projects promising the moon are likely headed for failure.
Since cryptocurrency is an emerging technology, it can be hard to differentiate between too much ambition and just the right amount of it. What might be too ambitious for one team might be attainable by another. That’s why investors should first of all make sure the promise fits the organization.
How many times have you heard that a new cryptocurrency business is the ‘next bitcoin’? The answer is far too often. There are so many similar projects, it can be hard to pick the winner. With much of the code for these projects being open-source, plagiarism is rampant not just in white papers but code as well.
Trying to compete with hundreds of other cryptocurrencies for the same slice of market share is much tougher than finding a truly unique solution. Shy away from copycats and ‘next’ anything, and look for innovators that are changing the game.
Rushed to market
In the fast-paced world of cryptocurrency ICOs, getting a project to the ICO stage and releasing the beta version of a solution is like a race. Many projects fail simply by jumping the gun here. Especially if promises have been made and timelines established, sometimes management will push a release rather than ask for the necessary time to complete the work.
This problem isn’t reserved only for the cryptocurrency market. Technology in general has suffered from this rush, and being on the bleeding edge, cryptocurrency is prone to it as well. Look for projects that set realistic goals and timelines.
Not responsive to the crypto community
One thing that exists in the cryptocurrency space is a vibrant community. Online forums, Reddit and development chats have a robust sense of community. Developers collaborate, problem-solve and monitor new projects.
This crypto community is not only important for continued development but gives a vital window to outsiders and potential investors. If you can read between the tech jargon, you can likely navigate which projects the community believes in. Also, many believe that cryptocurrency companies would be wise to listen to the community as well:
The reason many $crypto companies will fail is because they blatantly ingore what the community wants.
If you don’t listen to your community, how will you know what content works and what doesn’t? ?
— Nye (@MrMichaelNye) January 7, 2019
Lack of security
Theft is another big concern, and several high-profile cases have made the news, giving the whole community a black eye. Hackers stole over $500 million in a hack of the Coincheck exchange, but smaller examples happen all the time.
Not building proper safeguards into cryptocurrency systems, especially exchanges, is a recipe for disaster. It’s incumbent upon developers and entrepreneurs to bring the highest level of defense to these critical projects. Hackers will continue to prey on the weakest cryptocurrency systems.
Investors sometimes have to be patient as projects work through technical challenges, but often projects fail when they continue to miss deadlines. By setting an unrealistic timeline from the beginning, not staffing the project sufficiently, or simply lacking the resources, continually missed deadlines will cause investors to look elsewhere in the crowded market.
Last August, a user launched a bid to dethrone Dash CEO Ryan Taylor for consistently missing deadlines and burning through $500k of capital per month. This shows how missing deadlines is a sure sign that a crypto project is heading toward failure.
When the cryptocurrency market had a bear run which lead to a major correction in value, many investors sold off their holdings to protect their assets and cut their losses. This left some of the smaller, more vulnerable startups with nothing, forcing them to fold.
Rapid outflow of capital from the market is going to cause many crypto projects to cease, but many see this as a natural cycle and a way in which the market favors the strongest, most promising projects.
Surely you’ve heard the term ‘serial entrepreneur,’ and often this goes hand in hand with the latest cryptocurrency launch. Unfortunately, many of these leaders will abandon a project for greener pastures or a brighter idea they have, and leave the initial project to wither.
Research how many projects an executive is involved in, and how much travelling they do. If they spend more time at conferences and advising other firms than they do at the office, chances are their project is either fully established (and not requiring their presence) or destined for failure.
Stick with established projects
Instead of looking for the next big thing, keep in mind that with the lightning speed of cryptocurrency development, there’s still value from investing in established projects. Don’t succumb to the ‘fear of missing out’ on the next big thing, and concentrate your investment on the very best projects.