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How To Kill Your Blockchain Project

Blockchain projects are usually doomed to fail. In the middle of 2018, the China Academy of Information and Communications Technology declared that 92% of blockchain projects had already gone belly-up; the average lifespan of those projects were about 1 year and 3 months or so.

Overpromising also seems to be a recurring problem. A late 2018 study by a team of three experts including John Burg, a Fellow at the US Agency for International Development (USAID), drew a blank from all 43 blockchain “solutions”. The teams behind all the solutions went quiet under further probing. Eventually, the team concluded the claimed benefits were baseless.

Still, not all blockchain projects are doomed for the trash heap from the very outset. IBM has one of the most successful blockchain platforms out there, with clients like supermarket chain Carrefour hopping onboard. JPMorgan is also running the Interbank Information Network, with 75 institutions participating. It is hoped that it will succeed the over-40 years old SWIFT protocol.

Having said that, it’s time we looked at the mistakes of the past, so that they are not repeated in the future. Let’s look at…

Reasons Why Blockchain Projects are Failing

“Gold Fever” 

January 1848 was when James Wilson Marshall struck gold – literally. The discovery was made in the American River at the base of the Sierra Nevada Mountains in California. Word soon leaked out about the discovery, which was being reported in newspapers as early as March that year. In the months to come thousands of gold-seeking miners would make their own journeys to make their own fortunes.

Gold mining towns sprung up all over. Within them, all kinds of vices like gambling, prostitution and violence became more commonplace as towns and camps exceeded their capacities.

See the resemblances between the 1848 Californian gold rush, and the 2017 “crypto fever” that soon introduced many bad players in the market?

Long Island Iced Tea could quite possibly be a textbook case of this “gold rush”. The “non-alcoholic iced tea company ‘that leverages an iconic name to meet shifting consumer demands in the ready-to-drink tea (RTD Tea) segment,’” rebranded itself Long Blockchain in a bid to stay listed after receiving a delisting warning from Nasdaq in October 2017.

The move saw a 289% boost in stock price – but Long Blockchain couldn’t keep up the steam. None of their proposed blockchain ventures went through the way they wanted. Nasdaq delisted the company anyway in April 2018. Long Blockchain sold off its beverage business in March 2019; its market cap has seen better days.

No real-world purpose; works fine on a centralised server

Some projects just don’t need a blockchain. The functionality may well just need a centralized server – which would reduce costs and have more benefits compared to decentralization in some cases.

One project, Sponsy, was a blockchain-based platform being developed to “help sponsors engage with their clients in a decentralized manner”. However, in an interview, the founder himself admitted that “the core component is a platform. It doesn’t require any crypto or blockchain component to work. Just a typical, centralized server.” Sponsy only raised $10 in the ICO from one individual, and its founder has resorted to selling the idea on eBay for $60,000.

Once again, we go back to the revelation that many projects were unable to prove in concrete terms that a decentralized model posed more savings than a “traditional” centralized model. Teams need to be able to back up and be accountable for their claims, while the end investor needs to learn to discern between facts and falsehoods.

For a deeper, in-depth analysis relevant to you and your project, you’re more than welcome to get in touch with us.

Lousy implementation

Some projects have seen untimely demises due to coding errors that were later exploited in high profile attacks.

The DAO was a decentralized autonomous organization operating entirely on smart contracts. It was meant to operate like a VC fund for cryptocurrencies or decentralized applications, through crowdfunded contributions. Anyone looking to launch a project on the Ethereum blockchain could pitch their idea to the community, and (potentially) receive funding from the DAO. However, the DAO had a fatal coding loophole that allowed an attacker to “recover” their Ether multiple times. The attacker stopped after draining 3.6m ETH.

The attack would led to a hard fork of the Ethereum blockchain to reverse the theft; the “bigger” Ethereum today is the blockchain with the theft reversed.

Other applications also exist, with a common application being exchanges. Throughout history, many have also gone down or suffered losses due to a variety of reasons. In the most high-profile recent case, struggling Canadian crypto exchange QuadrigaCX fell apart after their founder – reported to be the only individual with access to cold wallet storage, passed away.

Have an incomplete team

Many projects were well-meaning but simply not well executed. The average team was made up of programmers and “geeks” with superior coding know-how but lacking in experience to run a business or manage finances. This has gradually shifted, as the industry matures. More and more teams are searching for the appropriate talents to fill out gaps in their capabilities.

In short…

Running a blockchain project is no different from running a normal startup. Key business fundamentals still apply; claims all need to be backed up by experience, passion, and numbers.

One can argue that blockchain is in essence a “utility”, like electricity or steam power. It has always existed, but as a solution looking for a problem. Electricity was used to power the commercial lightbulb and other inventions, all of which have changed society into what it is today. Similarly, it is time we start coming up with meaningful solutions instead of focusing on technology for the sake of it.

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