As dead cryptocurrencies stack up, is there cause for concern?
Even as the number of initial coin offerings (ICOs) continues to grow, there’s growth in another side of the market as well: the number of ‘dead’ cryptocurrencies. Based on the latest counts from two websites that track such things — Coinopsy and Deadcoins.com — almost 1,000 digital tokens have bitten the dust.
What are dead cryptocurrencies, and how do they die? According to Coinopsy’s definition, a token can be declared dead if it stays ranked below the top 1,000 cryptocurrencies for more than three months or shows a three-month trade volume of less than $1,000. A digital currency is also likely to be dead if it has no nodes or its website is no longer updated.
And why do cryptocurrencies die? Many didn’t have a legitimate reason for existence in the first place. Some were scams that came to an end after the founders/developers took investor money and ran, or after they were shut down by authorities. Some were malware. Others were simply jokes or parody coins: for example, Theresa May Coin or BUTT-coin (“the original CRAPTO-Currency that everyone is ASSking for”). And some began with varying levels of good intentions, but lost value and investor interest or never even made it past the concept stage.
“The carnage is mostly the consequence of failed projects from the thousands of startups that used initial coin offerings to raise billions in funding, and a global regulatory crackdown on questionable practices and scams,” Fortune reported in June. “Names like CryptoMeth, Droplex and Roulettecoin may have been a clue to the coins’ dim prospects.”
Out of all the initial coin offerings it studied, the ICO advisory firm Satis Group reported in July that 78 per cent were scams, 15 per cent survived to be traded on an exchange, four per cent failed and three per cent died. Of those that made it as far as an exchange, less than half could be described as “successful”, the report added, while nearly a quarter were “dwindling”.
Clearly, cryptocurrency scams are bad for those who buy into the hype and lose their investments. But individual investors aren’t the only ones who face consequences when tokens die. Failed cryptocurrencies contribute to a wider public perception that the market isn’t trustworthy. They also dilute the larger crypto market, leaving less money overall productively invested.
That’s why a startup named CoinJanitor recently teamed up with Deadcoins.com. Together, the two organisations hope to bring new life to dead coins by exchanging them for CoinJanitor tokens through a buyout programme.
“People who created, supported or were otherwise involved with cryptocurrency projects that are now functionally dead have all the value they invested in them trapped,” CoinJanitor said in a short PDF summarising its efforts. “They cannot transact or trade these coins. This trapped value can serve as a source of growth for cryptocurrency markets if it is freed. It will also be beneficial for those who hold these failed coins because it will allow them to join a new community that can achieve the network effect that the coins they hold failed to achieve.”
Whether or not CoinJanitor’s effort succeeds remains to be seen. In the meantime, however, investors should remain careful about which still-living coins they put their money into.
Ian Balina, an investor in nearly four dozen ICOs, told the International Business Times late last year that he makes it a point to seek out companies that have more than just a concept to sell.
“How far are they in development with the product itself?” he recommended asking. “I don’t invest in companies that are mainly ideas because that’s a huge red flag.”
