What is the biggest cause of failure for cryptocurrencies and altcoins?
Dead coins – aka the Crypto Graveyard – are becoming quite the phenomenon as the market for cryptocurrency gets older. They are starting to mount up, and the proportion of these which are scams in surprisingly high.
Let’s start with the definition of a dead coin: this is usually when either the developers abandon the project, take down their website (usually the result of the former) or when trading volume drops to below $1000 for three months in a row. There are now well over 1000 coins which meet this definition.
Frequently a coin will ‘die’ for reasonable reasons – e.g. the developers can’t keep pace with the rapid changes in the blockchain space – but a high proportion have been found to simply be scams. According to research from Traders of Crypto, scams account for a very high proportion of the failures out there.
Why do coins die?
- Abandoned or no volume – 1596 coins
- Scams (or other issues) – 528 coins
- ICO fail or simply short-lived – 239 coins
- Joke or no purpose – 33 coins
- Limited volume / limited exchanges – 2 coins
Scam coins can fit into a number of categories. The obvious one is the scam ICO where there is no intention of launching a legitimate project. Another favoured route is the pump and dump scheme, where a small posse uses their influence to drive the price up, before getting out at a peak which they usually determine for themselves.
Traders of Crypto note that “another form of crypto scam includes the simple theft of digital currency by either hacking investors’ crypto wallets or setting up fake wallets or exchanges to steal people’s money. The classic Ponzi scheme has also made a comeback, taking advantage of the unregulated market and people’s difficulty keeping up with developments in the crypto and blockchain space.”
Which brings us onto the biggest scam coins to date. This is a dubious club which is growing in number and ambition as we go forward.
The biggest scam coins in crypto history
- OneCoin ($4bn)
- BitConnect ($2bn)
- PinCoin & iFan ($870m)
- Gemcoin ($147m)
- ACChain ($80m)
- PlexCoin ($8.27m)
- Squid Game ($3.38m)
- PayCoin (unspecified)
- Titanium (unspecified)
Traders of Crypto can give you a more detailed run down of some of these scams. The OneCoin scam remains the largest to date and probably taught traders a lot of valuable lessons in the process. It was an early mover, raising money between 2014 and 2016. The OneCoin Exchange, which was the only means of cashing out of the coin at the time, shut down in 2017. Co-founder Sebastian Greenwood was arrested and is currently serving time in jail in the US, while his partner in crime Ruja Ignatova, is still on the run.
The lessons to be learned here are not complicated. Firstly avoid gimmick coins. Yes, DogeCoin was one of the most successful coins last year, but this was an exception to the rule. There’s always one. Secondly, do your research. Ideally find out who the developers are and what they have done previously. Where do they live? A lack of transparency is always a danger sign. We have been impressed at how little transparency some popular coins really offer their investors.
Avoid reward schemes and so-called guaranteed returns. Make sure you keep your crypto assets secure in a trusted wallet, and always use a reputable exchange. Let’s be careful out there.
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