Grow or Die: Some Thoughts on the Short-lived Bitcoin and Blockchain Startups

According to simulated statistics provided by Bitcoin Obituaries , Bitcoin startups have failed 102 times. Similar to Bitcoin startups, many blockchain startups have died after just one or two years.

Unlike cryptocurrencies, reports of Bitcoin startups failing are not exaggerated, and even if they are revived, they are almost always achieved through acquisitions and equity changes. Harborly, a Bitcoin platform, announced in 2016 that it was acquired by the US Estate & Trust Company. It said in its official blog that it is now the first platform to enter the world of up to 4 trillion IRA transactions by processing Bitcoin transactions for IRA accounts.

Data from Statistic Brain Research Institute shows that 25% of entrepreneurs will fail in the first year, another 36% in the second year, and 44% in the third year. Only 58% of financial insurance companies and real estate companies will survive and gain a foothold in the fourth year. Statistic Brain points out that the four reasons for the failure of startups are unclear importance, incompetence, lack of balance and lack of management experience. At the same time, the lack of effective goods and services, as well as ignoring dangers, fraud, and disasters are also reasons for failure.

Whether from an internal or external perspective, you can see the current situation facing the Bitcoin industry. For example, Dave Sloan announced the closure of the visualization configuration platform Treehouse Logic in 2013, saying:

“If you don’t solve the market problem, your business will inevitably fail.”

Network engineer Thomas Parisot, former CTO of now-defunct digital marketplace Dijiwan, tried to use the reasons for his company's failure as a warning:

Good product ideas and a strong technical team cannot guarantee the sustainable development of a company.

Two years ago, Christopher Poole, founder emeritus of 4chan and founder and CEO of DrawQuest, announced the closure of the remix artist community and said:

It seems incredible that seemingly successful products often face failure, but it happens all the time.

The fraud-proof cryptocurrency platform, which ran using a community model, shut down in November 2015. Duncan Riley, co-founder of B5 Media, a VC firm and news site The Inquisitr, said:

“While the service idea looked good on paper, it was clear that there was no market for it. You could think of it as a simple idea and platform that was trying to provide anonymous payment services for Bitcoin to the masses before a certain point, without much demand.”

Why do Bitcoin startups fail?

Although Bitcoin as a currency is essentially tied to value, transfer and transactions. Industry startups have never declared profit as their ultimate goal. They pursue innovation and hope to limit and interfere with user scenarios. For example, in a certain life cycle, investment, final income and further financing are crucial to the company, even if the unbanked population and migrant workers send money to their families. Profit is also important, and corporate reputation and how investors view Bitcoin also play an important role. Mt. Gox, which dominated the Bitcoin world, faced a catastrophic failure. Terence Lee commented in June 2015:

“It makes people think that the bitcoin industry is run by people who can’t be trusted, but on the other hand, it marks the end of a phase in bitcoin’s evolution from a simple get-rich-quick scheme to one that promises real innovation.”

Writing in May 2016, Yuliya Chernova expressed a different view in her article:

“Most people continue to use Bitcoin for speculation rather than for commercial purposes. Since its inception, the Bitcoin industry has failed to launch a consumer cryptocurrency revolution due to the encouragement of venture capital investors.”

Therefore startups cannot obtain consumer currency.

Chernova wrote: In many cases, once you have built the infrastructure, created digital wallets, enabled Bitcoin to be exchanged for fiat currencies, and

Consumers will appreciate the “Buy Bitcoin” button being placed on the checkout page. They want privacy and the risk of identity fraud, but merchants can decline fees and credit card charges.”

However, this rarely happens, and as the Bitcoin market consolidates, startups will avoid such situations in order to enable themselves to operate in the long term. Daniel Palmer also said:

After a “wild west” period where seemingly everyone was building their own Bitcoin-based service, the space is expanding rapidly, with a growing number of professional institutions and deep pockets giving them a head start. While some of the biggest Bitcoin institutions are reporting positive news, there are still a few companies that are revealing they have had to shut down.

Flowers, who has a net worth of $1.02 billion according to Forbes, said at the Super Return Private Equity Conference in Berlin, Germany (February 22-27, 2016) that most fintech startups fail to succeed, and one of the risks they face is bad lending decisions. Only some fintech startups succeed, and the rest fail.

Several Bitcoin blockchain startups have failed without hearing Flowers’ ideas. Among them, we consider 37coins, brawker, and buttercoin as case studies.

37coins

37coins Bitcoin remittance company announced its closure on August 11, 2015, a year and a half after launching its SMS wallet application, which allowed users to send Bitcoin via SMS anywhere. Like other Bitcoin startups, 37coins launched the project on the premise of providing services to people without bank accounts and making profits from them. As for the reason for the failure, the 37coins team attributed it to the inability to provide a good product that adapts to market needs. They found that sending and receiving text messages between different operators in countries outside the United States was unreliable.

The project started out promisingly. Founded by Songyi Lee, Johann Barbie, and Jonathan Zobro, they raised $525,000 in two rounds of seed funding in 2014. In May of that year, 37coins' team spent three weeks in the Philippines researching Bitcoin. They met with members of the Bitcoin exchange buybitcoin.ph and payment providers to establish partnerships. According to their blog, the visit and information they gathered in the Philippine market gave them great confidence. Not only could they serve the unbanked, but there were also opportunities for their project because some tourist attractions were troubled by the lack of Internet access and ATMs. A month later, 37coins presented the project at the Plug and Play Technology Media and Mobile App Expo in San Francisco, California. In September 2014, the team of three members was expanded, but it was disbanded a year later.

Where are they now? Former CEO and CTO Johann Barbie currently works as CTO at blockchain company Ambisafe, which has developed a cryptocurrency wallet software. In February 2016, Ambisafe was selected as one of the vendors to develop a blockchain-based election system for Ukraine.

37coins' other two co-founders, Songyi Lee and Bitcoin consultant Konstantin Korenkov, are now freelancers, and its senior architect Andres Junge is now a senior architect and Dapps developer at Consensus. On May 1, 2016, Andres Junge and BlockApps announced that the hackathon will be part of the 2016 Visual Studio Marketplace Hackfest.

Brawker

Similar to 37coins, the proxy purchase platform Brawker was launched with the goal of making it easier for users to trade bitcoins and purchase items on bitcoin websites. However, 18 months later, in April 2015, Brawker declared failure. It made sense for this to happen:

Our growth rate and service scale have not reached the level we expected. When we started this project 18 months ago, there were already many great startups in the Bitcoin community, and the environment they faced was different.

Brawker’s announcement follows on the heels of a March 2015 notice that there had been changes in the company’s management, with CEO Cyril Houri and the development team running the project having left the platform, and that the platform had considered moving to new server facilities.

Buttercoin

Buttercoin, a digital trading engine founded by Cedric Dahl and Bennett Hoffman in 2013, shut down its service in April 2015. After two rounds of funding, Buttercoin received $1.6 million in funding. Among the companies that presented at the Y Combinator 2013 Summer Demo Day, the company was among the top 8. Buttercoin's solution for the remittance market has won the support of a group of influential investors, such as Google Ventures Kevin Rose and Chris Hutchins, Reddit creator Alexis Ohanian, investment institutions Floodgate, Initialized Capital and Rothenberg Ventures. However, as Jon Russell pointed out, although these backers have great influence, they are not keen on Bitcoin investment. Beyond cryptocurrency valuations, the Bitcoin trading market is relatively mature. The rise of companies such as Coinbase and Bitpay has attracted millions of investors and won big customers. This makes it impossible for other small companies to break through the bottleneck, even if they have the support of well-known people and institutions. Could this be one of the tragedies of Bitcoin's failed integration?