Published: November 13th, 2020
A report recently released indicate that of the several thousand cryptocurrency projects launched, only a handful currently has investment value. And many cryptocurrency exchanges founded on the wave of the growing crypto popularity are on their death bed.
According to a news article posted on the Cointelegraph, the cryptocurrency space is laden with dead projects. The reason, the report adds, is because of the crypto wave of 2017 when everything about the blockchain and crypto appeared fresh and exciting.
The two-year period between 2016 and 2018 that culminated in Bitcoin breaking all records and exchanging for almost $20,000 a coin came with unimaginable creativity. Not a day passed without the cryptocurrency space seeing a revolutionary idea or project peddled in a glossy whitepaper.
Darryn Pollock, a staffer at Cointelegraph, said that while most industry analysts initially blamed Bitcoin's 2018 drop from a record high for the projects' dismal performance. The journalist added that it is now clear that several other reasons contributed to the downfall of many of the crypto projects despite taking in billions of dollars in investor funds.
Most people in the crypto space, seasoned practitioners, assume that the blockchain ecosystem is more about supporting cryptocurrencies. However, the sphere is a lot more complicated than that, Darryn said.
He pointed out that one of the industry's staggering facets that led to the fall that the crypto environment is witnessing now is initial coin offerings (ICOs). ICOs are not only a crowdfunding method; instead, it is an avenue for disrupting traditional venture capitalism and expanding the breadth of cryptocurrencies beyond Bitcoin's simplistic applications.
Darryn said that this boisterous and irrepressible side of the technology had created an avenue for many projects' failure. The crypto-journalist noted that while countries such as the U.S., Great Britain, and Russia led the ICO rush with finance projects leading the fundraising exercises, most of the money raised ended elsewhere.
Even projects that sold finance and allied services as the core service only allocated a paltry portion to the leading cause while pumping more than 40% of the funds to blockchain development. Darryn said that premise makes technical sense but is hollow commercially.
Arjun Kharpal, a CNBC staffer, echo Darryn's comments. According to him, the nature of ICOs as a form of raising funds is also to blame. ICOs raise money by issuing virtual coins that investors buy. However, the backers do not necessarily have a stake in the company despite purchasing the coins.
He said that the real reasons why most investors bought into the ICO frenzy are because the coins were cheap (portions of a cent in certain instances) and the hope that the gains would be several folds in the future. So far, only a handful of the coins floated in ICOs conducted between 2016 and 2018 have given back reasonable investment returns.
Arjun said that the two reasons alone helped companies raise more than $20 billion in 2018 alone. He added that most of the projects fizzled out, and the investment cannot be traced now because most of the ideas never materialized or were scams.
It is not surprising that people bought into what turned out to be jokes because of the craze, Arjun added.
Ian Wong, the technology reporter for Quartz, agreed that the craze got ridiculous to a point where over-enthusiastic investors threw money at anything that had cryptocurrency and ICO in its name. He cites the now-famous Useless Ethereum Token, which raised $40,000 in less than 72 hours.
Overall, flashy whitepapers and the premise of participating in cryptocurrency projects helped many projects to raise funds. Because of the overnight success that Bitcoin and Ethereum recorded, most want-to-be millionaires thought the many cryptocurrencies sprouting every waking day would replicate the success of the two leading coins.
However, according to the report, it turns out that the whitepapers were nothing more than well-crafted PR material. Sara Shayanian, a cryptocurrency enthusiast, said that it was easy to see the trend and evolution of terminology in the whitepapers like every other marketing material.
Initially, most marketing materials had terms such as blockchain-based, transparent, and distributed, Sara said. Soon, such terms made whitepapers appear ordinary, she added. The flair of marketing rotated to absurd project names such as
Blockchain-Based Payment System for Modern Parking, P2P Banking System for Sportsmen and Women, and Decentralized Equine Products Value Chain Platform, among many such other ambiguous terms.
Sara said that keen scrutiny would have revealed that these projects did not have real users. However, the projects' core developers created the impression that their projects were solving real-life issues. She added that this situation probably is why only a handful of the several thousand ideas sold at the height of the ICO craze are of any value.
Among the notable projects that raked colossal amounts of funds but have not achieved much include the Wiki Token, Petchains, and Telegram Open Network (TON). The Wiki Token was an ERC-20 coin designed to facilitate payments at the Crypto University. According to the information available online, Crypto University was to become a completely autonomous and decentralized, censorship-free learning system.
Petchains was marketed as a global trading and information management platform for pets. On the other hand, TON, which raised almost $2 billion in just two rounds of private sales, would have replaced conventional money.
All these projects and a lot many others flopped.
Following the ICO craze that took a good portion of 2016 through 2018, the vast majority of thousands of projects sold to investors for billions of dollars are now dead. These projects' death is attributed to over-ambition among most developers and poor articulation of the project goals. Besides, the greedy nature of humanity played a part. The said rapacity, coupled with the loopholes in ICO's structure, gave jokers and scammers a field day.