Is the cryptocurrency model failing?

Since its creation more than a decade ago, the cryptocurrency market has celebrated several major achievements.

However, for the sceptics out there, these successes are far outweighed by the market’s high-profile setbacks.

From rampant scams and fraud through to hundreds of so-called dead coins, there is certainly a lot of evidence to back up the doomsdayers’ claims that the value of Bitcoin and other major cryptocurrencies will eventually fall to zero.

But is the model really doomed? And if so, why is cryptocurrency failing?

Cryptocurrency successes

The cryptocurrency model is facing numerous challenges, but its successes to date cannot be overlooked. By far the biggest success story in crypto’s somewhat short history is Bitcoin.

Despite being launched only a decade ago, a single Bitcoin today is worth an impressive four figures – or $7,200 at the time of writing. And although Bitcoin experienced a huge crash in early 2018, there are signs to suggest its volatility is abating.

Bitcoin, and other major cryptocurrencies too, have hit significant adoption and usage milestones. In April, for instance, the 400 millionth transaction was recorded by Bitcoin’s public blockchain.

Some people believe cryptocurrencies will soon go mainstream, pointing to their adoption by major financial institutions, technology firms, and other corporations around the world.

Blockchain, the technology that underlies cryptocurrencies, is seeing even wider acceptance among companies in a range of sectors and industries.

Cryptocurrency failures

At the same time, however, the crypto market has witnessed some monumental failures. According to Deadcoins.com, there are around 1,000 “deceased” coins and another 700 coins that have fallen victim to scams.

Many coins were launched to great fanfare during the Bitcoin bubble but simply failed to live up to their hype.

The market has also witnessed high-profile thefts, hacks, scams, and regulatory crackdowns, which have severely tarnished its reputation and credibility.

Why is cryptocurrency failing?

A major problem in the crypto market is the lack of innovation by developers. There have been multiple launches of “the new Bitcoin” despite the fact that Bitcoin is still heavily in demand. Since the market doesn’t need a new Bitcoin, these coins inevitably fail.

According to Gavin Brown and Richard Whittle at Manchester Metropolitan University, another somewhat ironic issue stems from the acceptance of crypto by financial institutions.

“Wall Street is steadily taking charge of the crypto action, professionalising trading with the likes of derivatives and futures products,” they argue.

“We may now be entering a phase where only large institutions will be able to generate profit from cryptocurrency design.”

Many other cryptocurrencies could fail in the future simply because they don’t have the resources to compete with these huge institutions.

Another potential consequence of crypto entering the mainstream could be more stringent regulation, which only serves to stifle growth and innovation.

Yet perhaps the market’s biggest problem is its failure to garner trust among the general public. Many people have lost enormous amounts of money – either because they invested more than they should have in the Bitcoin bubble or because they have fallen victim to scams or hacks.

Whilst too much regulation is thought to be bad for the crypto market, the lack of it thus far, combined with a general lack of understanding and awareness among the public, is likely to lead to even more people losing their hard-earned money in the future.

Conclusion

The cryptocurrency model certainly has a lot of problems to overcome, but this doesn’t necessarily mean it is doomed to fail.

New coins are being launched all the time – there are around 3,000 currently in existence – and several of these are proving to be a huge success. Prices are still volatile, but the sector as a whole is much more stable than it was in the past.

As the sector starts to mature, it’s likely we’ll see even wider adoption of cryptocurrencies and blockchain technology by individuals and companies around the globe.

With that will come increased understanding of cryptocurrencies as an investment opportunity, which will hopefully help to minimise the huge losses suffered by unsuspecting members of the public.