In Brief
Ethereum co-founder Vitalik Buterin reckons that nine out of ten token startups are doomed to failure. While widespread experimentation with tokens is a good thing, the current reliance on ICOs could prove problematic going forward.

Initial Coin Offering

Vitalik Buterin knows a thing or two about how to launch a cryptocurrency. At 23, the co-founder of Ethereum is widely considered to be an expert in the field, having written about the subject extensively before diving in and developing his own platform. However, Buterin is realistic about the prospects of the vast majority of initial coin offerings. Speaking at the ETHWaterloo hackathon earlier this month, he stated it should be an established fact in the cryptocurrency industry that most token startups will fail. Buterin estimates at least 90 percent are doomed.

“There are some good ideas, there are a lot of very bad ideas, and there’s a lot of very, very bad ideas,” said Buterin, speaking as part of a panel on decentralized technology. “And quite a few scams as well.”

This isn’t necessarily such a bad thing. Buterin explained that while the current first wave of tokens will soon give way to an improved second generation, those tokens that emerge in 2018 and 2019 will be better, simply due to experimentation that is going on right now. Still, the thrust of Buterin’s remarks was that the plenitude of ICOs could pose a problem for the continued health of cryptocurrency as a whole.

Of course, his comments about token startups don’t refer to a situation unique to that market. His estimate of a 90 percent rate of failure is based on the fact that 90 percent of startups, across the board, never see success.

Token Trepidation

ICOs can rack up some serious funding, often for a technology that’s completely unproven. In July 2017, the Tezos blockchain set a new record by amassing $232 million over the course of its ICO. Buterin has previously made some very public criticisms of that project, too.

China recently issued a ban on ICOs that sent ripples through the entire cryptocurrency market, as investors worried that similar legislation might be put into place elsewhere. It’s since been said that these measures are temporary. Yet this serves to demonstrate that governments could well step in to regulate the practice sooner rather than later.

At the end of the day, ICOs–like many facets of cryptocurrency–just aren’t the guaranteed win that some might make them out to be. Whether you’re investing in Bitcoin or buying up tokens for a brand new coin, there’s always a chance that you might end up taking a loss. The key is making sure not to get caught up in the hype.

Disclosure: Several members of the Futurism team, including the editors of this piece, are personal investors in a number of cryptocurrency markets. Their personal investment perspectives have no impact on editorial content.