What Happens When a Coin Dies?
The recent bear market has many imagining what might happen if bitcoin or ether were to die. It is hard imagining this happening, but there is a possibility that if the current decline in prices do not self-correct, the crypto market and all its assets may permanently devalue.
So, what does it mean when a coin dies? What does this mean for investors and for the market? Can a dead coin ever come back from the grave? Most importantly, what would happen if a major coin, such as bitcoin or ether, die? Could this create a recession in the fiat market?
The Life and Death of a Coin
A crypto asset is technically not a living being, so using the word “dead” or “dying” to explain it may be inappropriate. Technically, a dead coin is “disintegrated,” meaning that the asset is no longer traded either person-to-person or via exchanges.
This can take two forms. One is akin to the concept of “dead stock,” or a sellable asset that never made it to the selling floor. This may be because there was no demand, it was made obsolete by another product, there was no room to present it, or because it was outdated or otherwise corrupted. With crypto, “dead stock” refers to coins that were never traded because of operational problems, a lack of interest in the asset, or regulatory problems.
Such coins were never distributed or mined and – as such – never accrued value. This type of dead coin has little impact on the market, as they never were traded for fiat or for other coins.
The other type of disintegrated coin is delisted coins, which this article will focus on. A delisted coin, or a coin that was actively traded but was removed from the markets either voluntarily or compulsively, represents a loss of value. Delisting does not kill a coin, per se, and most coins can recover from being delisted from a single exchange, but multiple delisting or mass delisting represent a fatal wound that will bleed value from a coin until it is regarded as virtually worthless.
However, a worthless coin is not a dead coin. Typically, a coin is considered dead when it meets certain factors:
- The coin is recognized by the crypto community, law enforcement, and/or the courts as dangerous or not safe to be invested in;
- The coin no longer has the support of the crypto community and the investor’s class;
- The coin is effectively no longer being managed by its authors, its owners, or its user class and the software/network is no longer being monitored;
- Customer support and/or website for the coin has been abandoned;
- There are not enough active nodes to support the network’s blockchain; and
- The number of empty blocks published to the blockchain exceeds the number of used or filled blocks.
This definition would include coins found to be hacks, scams, and to be abandoned for various reasons.
Understanding Dead Coins
Coinopsy goes deeper into the types of dead coins:
- ICO Cash Grabs: “A ICO cash grab is when the project has just been setup to make the developers massive amounts of money and then pawn the project off the the many people invested/involved. Because they have so much invested into the project. Plus people who invest into blockchain related projects are typically well knowledgeable when it comes to coding and development. They trick investors by saying things like open source platform or listing fake names. Sometimes even just dropping latest trending blockchain related keyword like Sharding or Sidechain in the future development plans.”
- ICO Scams: “ICO Scams are things like pre-mine or Airdrops or fake online wallets. This is similar to the cash grab. But usually more sinister and a planned attack on bad or lazy investors. They will sell you some new idea that sounds interesting and you invest in it because of an emotional attachment. The site will look very well made but will have little depth. For example some of the links will be broken or just redirect you to the top of the page. Commonly the site will just be one long page. Another tell tail sign is not being able to find the developers listed on the team page, you find them by searching google for the names. Sometimes they might not even have a team page listed. Lots of the photos and content on the website almost looks recycled from other websites. The last giveaway is they only ever have hopes and dreams to sell you, no working product or platform that works or can even be tested. So you just have to take their word for it.”
- ICO Abandonment: “Lots of the time a project will be a fairly good idea with a few good developers, but the project never manages to get listed onto some main exchanges. So the developers give up and move onto the next project. Lots of the time the money claimed from the ICO, will be returned back to the investors and no harm was done. Other than time lost waiting for the project to come to a end.”
- ICO Collapse: “Some tokens are made by very inexperienced people, so the plans/road map just don’t get completed. They will have a very small team and a small budget. Plus bad advertising or just not enough advertising due to a small budget. So nobody knows about them and the coin or token never gains the traction needed to get listed on main exchanges. Some times they have very good ideas and often are for charity. It can be sad to see and very hard to add a charity coin to the dead coin list… But when you take money from someone you should uphold your part of the deal, by completing the project and meeting the deadlines on the road map/long term plan.”
- Joke/Parody Coins: “Many of the dead coins are just a big joke, they were made with the intentions of not being the best or greatest currency. Or to just profit off a person name/reputation. Some coins also fall into the scam category due to the fact they used the name to stand out and pump the coin. Then soon after the developer will sell all his coins and abandon the project. This is why most coins are listed as abandoned projects. Some of them are just made to take the piss. So are made to take the seriousness out of the currency in general. What you have to understand is the a currency does not have to please stock holders only do it’s job correctly. That job is mostly holding its value and being easy to spend on services and goods. Funny enough that some of them have become semi successful like Dogecoin for example. Looking down the Marketcap Dogecoin is a top 50 coin. But Doge is a bad example as lots of hard work has gone into the maintenance and security of the coin.”
- Scams: Scams tend to fall into six major types: grab-and-run, pump-and-dump, premine scam, fake fork, fake platform, and private key theft:
- “Grab-and-run”: A scammer may promote a coin or token that seems too good to be true. Once the coin hits the market and a market capitalization is set, the scammers cash out, take the money, and disappears, leaving investors on the hook for the loss.
- “Pump-and-dump”: Scammers identify an underperforming coin, would buy a large amount of the coin, and announce on social media their intentions to run a “pump-and-dump” on it. Investors – eager to get in on the “get rich quick” scheme – would buy the coin, pumping the value quickly. The scammer would then sell off its coin stash, deflating the price and trapping the late comers with the loss.
- Premine: “When you create a coin or token, you can set out how much coins the pubic receive and how much the development team receive. Normally there is about 90-10 or 80-20 ratio so investors will own 90%-80% of the coins and the development team will only have 10%-20%. In some cases the it will be the other way around. Developers will have 90% and investors will only have 10%, this means that there is a limited supply to trade. This can push the price very very high. Till the the developers sell all the coins. Then the coin is worthless. Generally avoid coins or tokens were the development team have large portion of the coins. Some cases it is for a set reason to inflate the coin over time. But that will not be part of the circulating supply. Like a supply that no one has access to till set time frames or blocks are meet.”
- Fraudulent fork: “Coins will get 1-2 years and be outdated/not traded much, developers will launch a 2.0 or change to a token from a coin. This can involve moving all the money onto a online platform that is not safe or into the developers account. Next thing you know you have lost all your coins and nothing ever launches. The best way to avoid this is to trade your holdings into a different coin till after the 2.0 is out and stable. This is not always possible and one of many reason crypto is so dangerous and risky. Hard forks mean a currency is splitting into two currencies. Some times one of the coins will die. Forks are complex in cases, so do lots of research if a coin you are holding has announced a upcoming hard fork.”
- Fake platform: Technically a “grab-and-run,” some exchanges present a Ponzi scheme to investors with “guaranteed” return-on-investments. Sometimes, these fake exchanges simply close shop, constituting an exit scheme, while others continue to putter along until they ultimately fail or are stopped.
- Holding users’ private keys: One of the least common scams, this is the most devastating. Basically, an exchange would use a user’s private key to directly steal coins from that user’s wallet.
- Abandoned: Most dead coins are simply abandoned. These coins can be abandoned for legitimate reasons, such as lack of traction in the community, failure to secure nodes, malfunctioning software, limited funds, or simply because the development team gave up.
Regardless of how the coin died, the dead coin reflects a loss of investment value or investment potential. This leads us to ask, what happens if a major coin was to fail?
What Happens if Bitcoin Fails?
The honest answer is that no one knows. As the reserve currency for the crypto market, the collapse of bitcoin would likely drag other coins with it, such as ether, all the bitcoin forks, Litecoin, and Tether. It would also lead to the collapse of several exchanges and the devaluation of several companies that have bitcoin as part of their institutional portfolio. Finally, a large investor class will be left deflated.
However, the reality of a dead bitcoin is more drama than actuality. With bitcoin already losing more than 80 percent of its top value as of the writing of this article, the loss of bitcoin would be the same as if McDonald’s were to close overnight: it would be sad for McDonald’s customers and their suppliers and there may be a momentary dip in the stock market, but that would be it.
The potential failure of bitcoin, then, should be taken as it is: the end of a remarkable moment of history. “So, if Bitcoin fails, does that mean that all crypto-currencies can never be as successful as precious metals or paper money?” 99 Bitcoins wrote. “Could the anti-Bitcoin pundits, such as Peter Schiff be right? No. Although Bitcoin may fail at some point in the future, it has still created a discussion in economic circles that could potentially advance the entire monetary theory in general. The failure of one crypto-currency, even if it is the most successful one, does not mean the entire economic theory surrounding these currencies is invalid.”
“This question is where many people mistakenly tie the technical inner workings of Bitcoin together with the economic theory of crypto-currency. In reality, they are two very independent things; the economic theory of these currencies even extends beyond the crypto landscape and applies to the theory of money in general. Therefore, when we talk about the failure of Bitcoin, we must discuss both the failure of its technical aspects and the validity of the economic theory behind the entire concept of digital currency.”
But, this is reaching. The odds of bitcoin being abandoned is near-zero, even if the coin completely devalues. The coin holds too much fascination and sentiment foe it to go away forever. However, the commercial appeal of bitcoin could definitely die, and this must be a possibility we accept and prepare for.