Why Are There So Many Cryptocurrencies?
Though popular coins like Bitcoin and Ethereum lead the crypto market, there are many, many more coins and tokens out there. In fact, there are over 20,000 cryptocurrencies in existence today. Many of those are now worthless and inactive, but this still leaves over 10,000 that remain in the game. So, why are there so many cryptos out there?
While the crypto industry is now undoubtedly huge, its boom is relatively recent. And, because it’s only over the past few years that this market has grown, many people are eager to get in on the hype and make some money out of surging demand. This is one of the core reasons why there are so many cryptocurrencies today.
But this isn’t the only factor playing into the crypto surge. Many people also believe cryptocurrency is the future of finance, with its lack of centralization, increased security, and transparency. This passion drives a lot of crypto entrepreneurs on top of the possibility of financial success.
Cryptocurrencies can also have a purpose beyond store-of-value. For example, decentralized projects may want to use their own native token as a form of customer payment or might want their own governance token for voting purposes. This opens another niche for crypto development.
It’s also incredibly easy to create your own cryptocurrency. However, while you can build a crypto from the ground up using your own code and protocols, this takes a long time and requires a high skill level and knowledge base. After all, a coin requires its own blockchain, and creating one can be a huge undertaking if done from scratch.
This is why developers often choose to create tokens, which exist on top of another blockchain, such as Ethereum. In fact, one can now create a cryptocurrency in a matter of minutes, even if their technical experience is low, making crypto development essentially an open door for anybody.
Why Do So Many Cryptocurrencies Fail?
1. A Saturated Market
Several factors play into the failure of so many cryptocurrencies, with one of the most prominent being over-saturation. Though the cryptocurrency market is relatively young, it’s already overrun with budding entrepreneurs and developers. This has given way to an over-saturation of available coins and tokens, to the point where it is now incredibly hard to stand out from the crowd.
Because of this challenge, many who develop their own cryptocurrencies end up abandoning their project when the asset in question doesn’t gain any traction or value. As a result, there are currently thousands of “dead” cryptocurrencies that are no longer active, which goes to show just how difficult it can be to rise through the ranks in this industry.
2. Lack of Stability
The cryptocurrency market is very susceptible to a range of factors that may cause a crash. If you’re into crypto, you’ve probably noticed how the price of a coin or token will often fluctuate multiple times a day. The value of cryptocurrencies mostly rely on supply and demand. If the supply of a coin exceeds the demand, the price will likely decline, but if the demand exceeds the supply, there’s a good chance the price will rise.
The problem with this is that the demand for an asset changes regularly. One week, a hot new project with its own native token may see big price hikes due to a wave of popularity. However, when things die down, and interest fades, the demand fades with it. This usually has a knock-on effect on the token’s price and is a risk that must be understood when entering the crypto field.
But many other factors can also affect a crypto’s price, such as scandals, regulations, and events in the traditional financial world. For example, when the global stock market faces a downward turn, the crypto market usually experiences a similar dip. This is because many crypto investors also have money in the traditional stock market. So, when the latter suffers, investors expecting a crash will often offload their crypto holdings before the prices fall too severely.
3. Lack of Application
There are a number of different uses that a cryptocurrency can have. Most people are more familiar with store-of-value cryptocurrencies, such as Bitcoin. But many coins and tokens have additional utility in other areas.
Take Ethereum, for example, another popular cryptocurrency. While Ethereum can be invested in purely to make a profit, you can also use Ethereum to stake, pay gas and transactional fees on the Ethereum network, and pay for services within Ethereum-based projects. This gives Ethereum a lot of utility and helps in maintaining its value.
However, some cryptocurrencies simply don’t have enough application.
Why Do Some Cryptocurrencies Succeed?
As is the case with crypto failures, a range of factors contribute to the success of a coin or token. The state of the market upon the launch of a given asset can be a particularly common make-or-break factor in its success. If an individual was to launch a coin when the market was doing very well and demand was high across the board, they’d have a better chance of succeeding.
However, if an asset is launched during or before a crash, it may prevent it from ever-amassing value as fewer investors are looking to spend money or trade, especially on risky, unknown projects. This is why it’s important to understand the state of the market before making any big moves.
Bitcoin is a prime example of a coin launched at a good time. When Bitcoin launched, it was the only cryptocurrency in existence, so its legacy as a world-first has played a role in its huge growth. But this scenario is entirely unique to Bitcoin and cannot be replicated by newer assets.
A coin or token’s application can also aid its success. We’ve already discussed how Ethereum’s various uses have aided its success, but a wide array of other cryptos have a similar advantage, such as the stablecoin known as DAI. DAI plays an integral role in the MakerDAO ecosystem. With MakerDAO, users can borrow DAI while depositing different decentralized collateral or lend DAI to others.
While some invest in DAI for other reasons, its use within MakerDAO gives it a purpose beyond store-of-value, which can aid in securing its future and maintaining its worth.
On top of these factors is another very important point to consider: marketing. When it comes down to it, the cryptocurrency industry is all about money. Investments, trades, loans—these elements are integral parts of the crypto market. So, when you develop a coin and want to start amassing value, marketing can become your best friend.
But marketing can go wrong or be ineffective, as it has done so many times before. So, if someone has developed a new coin and doesn’t have the luxury of association or instant hype, it can be very difficult to gain interest. Many opt for social media to promote their new projects or cryptos, but this also isn’t a sure-fire solution. In short, it often takes a well-structured marketing campaign to gain significant traction.
The Crypto Industry Is Unpredictable
We all know how volatile the crypto market can be, with coins and tokens constantly running into roadblocks and challenges that threaten their value. Because of this, crypto development can be a real struggle, with so many assets already beaten by the market’s fragile nature. But this doesn’t mean it’s all doom and gloom for crypto entrepreneurs, and we’re still seeing new projects reach the heights of success to this day. As is always the case with crypto, we’ll have to wait and see which asset changes the game next.
