Why do most ICOs fail?

Why do most ICOs fail?
Why do most ICOs fail?

MegaZIO.com.MegaZIO.com – In this article, we will study the reasons why most of the ICOs held by various developers in the world fail. Tokentops statistics reveal that 99% of ICOs have been scams and have been confirmed to fail. There are not a few ICOs that offer the attractiveness of ROI (Return Of Investment) with a level that is too high.

Imagine, recent ICOs (Initial Coin Offerings) like Dent offered an ROI of 57.659% or 576 times the initial investment. For those who are logical and of normal mind, of course, you already know that this type of investment has the potential to be fraudulent or lead to fraud, which can end in the loss of investment funds.

On June 12, 2017, an Ethereum-based ICO called Bancor raised $153 million in just 3 hours. The BAT ICO made $35 million in 30 seconds, or about $1.2 million per second. Have you heard of UET? UET had an ICO that made $40,000 in just 3 days. Why do we talk about Bancor, BAT and UET?

These three ICOs have proven to be ICO tokens or jokes. Imagine, tokens that are not clearly used and have no economic function, actually result in a super large fundraiser in no time. They only focus on the “crypto” form of the coin, not pointing out that its functionality and benefits should be able to compete with the major cryptocurrencies currently on the market.

In fact, about 99% of all ICOs that have been launched have failed. Of course, these staggering numbers are not just guesswork, as thousands of new cryptocurrencies have been created in recent years, and more than 90% of them have failed.

Even if we visit the Coinmarketcap website, there are about 1540 coins that have been created and floated in the market, but more than 50% of them only have a market valuation of less than 1 million dollars. That is, it can be said that the adoption that took place in the currency failed.

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Before moving on to the main discussion, there is something to clarify: I personally do not hate ICOs. I think the ICO is truly revolutionary and will continue to evolve as the vehicle of the future.

In addition, entrepreneurs and investors who want to innovate just need a Whitepaper concept to carry out a fundraising project. Of course, I find this absolutely “brilliant”, but at the same time “absurd”.

So how do ICOs work?

In essence, the developer issues a certain number of tokens. By holding a certain number of tokens, they ensure that the tokens themselves have value, while also showing that the ICO has a goal to achieve. Tokens can have a predetermined price, or can go up and down depending on how big the buying and selling is (consensus).

The token is basically a native currency that can only be used within its scope. Just like the special coins you get at the arcade game center in the mall, you can only use the coins on the game controller.

The token can only work when the owner wears it in one area of ​​the house, such as marker bracelets worn by tourist attractions. When you wear it, the bracelet is only valid at the tourist location that issued it, and is not valid at other tourist attractions.

ICO transactions are quite simple. If someone wants to buy tokens, they just need to send some funds to the ICO player’s address. When the transaction is complete, the buyer gets the appropriate amount of tokens. So it is as simple as the main idea of ​​how ICOs work. If that’s easy to do, why do most ICOs fail?

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The main reason behind this phenomenon goes back to the lack of awareness of the developers or entrepreneurs about the three pillars that the tokens must have:

  • Cryptoeconomics atau Cryptoeconomics
  • Utilities
  • Security

Without understanding these three components, Token will have a hard time competing with thousands of other coins. To help you understand, here is a description of each of the important pillars above:

1. Cryptoeconomics

It’s a funny fact when most developers forget this first pillar in their ICO. Note that there are 2 words that make up the word Cryptoeconomics: Cryptography and Economics. Most developers only pay attention to the crypto part, without really paying attention to the economic part. As a result, it is very rare to find an ICO-generated token whose economic framework is well laid out before producing its Whitepaper.

For ICO tokens to be valuable in the long term, of course, the economic aspect must be considered, because what creates a price agreement in the world of cryptocurrencies is consensus; full awareness of the supply and demand sides.

As seen today, most tokens are simply inflationary with a flawed economic model that is unsustainable in the long run. It is not uncommon for ICOs to offer quite high returns and only lead to Ponzi schemes, which are bound to collapse in no time.

One of the biggest advantages of ICOs is that anyone can submit a proposal (white paper) for the public to fund their concept. But the thing to remember here is that it is not a finished product, but only a concept. There is still a long way to go before a concept can become a finished product, so there is a 90 to 95% chance that the concept will ultimately fail.

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2. Utilities

Most ICOs do not max out this pillar on their tokens. In fact, authentic evidence that people will need tokens in the future must be provided for the overall value of the ICO product to be great.

For example, if you want to become an ICO developer, ask yourself: if you don’t accept tokens, will your business go out of business? If the answer is no, you don’t need a token or ICO. Most people “tokenize” their business just so they can “HODL” (last for life) and own more crypto in the future.

If you want to use tokens for business, you need to truly understand their function and maximize their utility, not just follow the crowd without knowing the ins and outs of tokens and ICOs. You need to understand that “tokenization” can be a versatile tool to provide higher trading benefits.

To maximize the utility of a token or ICO, there are a number of things developers and investors really need to understand, including rights and obligations, determining exchange rates, tolls (terms for getting installs), features, types of coins and advantages. .

3. Security

Chainanalysis data shows that more than 30,000 people have become victims of cryptocurrency-related cybercrimes. Each has lost up to $7,500. For its part, ICO fraud crimes during 2017 accumulated losses of up to 1,600 million dollars.

Developers or companies that will have an ICO must, of course, pay attention to security issues. Once the platform is hacked due to code errors, phishing or other reasons, the trust of token buyers will vanish.

As a result, the demand will immediately drop and generate less interest in the Tokens. This can quickly cause the tokens to disappear from circulation, as no one is interested in owning them.