Finnish researchers have looked at the factors that can predict the failure of a cryptocurrency project – or, as Forbes’ writer puts it, its default.
This won’t come as a big surprise to many in the crypto space, but there are certain things you should look for in a crypto if you want it to be around in a few months or years’ time. Researchers from the University of Vaasa in Finland have looked at the chances of a cryptocurrency ‘defaulting’, as Forbes’ Simon Moore, an investment writer, puts it – showing very little understanding of what a crypto is or how it works. To ‘default’ suggests the currency has an obligation to repay you something, and then doesn’t, or that it has assets that it loses somehow… It’s 2019, and the state of journalism around cryptocurrencies is better than it was when we started. But some of these guys. ‘Default’, seriously? But we digress.
The paper pinpoints a number of factors that decrease a currency’s long-term chances of success (see how you can put it a different way that still makes total sense, Simon?). These include:
- A strong first day of trading. And Day 1 really is the most important day – after this, the beneficial effects of volatility seem to reduce. A busy first day on the exchange and then a period of stability seems to be one of the marks of a coin that will last the distance.
- A low pre-mine. A no-brainer, though the research suggests a very low threshold – somewhere in the region of 0.5% pre-mine seems best. (The study includes only PoW-mined coins, not PoS.)
- A public team is better than having an anonymous founder. Bitcoin is an exception here – usually founder anonymity is a bad sign. Again, it makes it easier to slip away, with or without the money, without facing the consequences.
- Lower rewards are a good sign. Counter-intuitively, higher rewards point to less chance of a coin lasting – perhaps because ‘investors’ rush in for the short-term benefits, and don’t care about much else.
Tick all these boxes, and there’s a decent chance your crypto will last for at least 4 years. And that it won’t ‘default’.
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