Six things Bitcoin startups should not do

1. Don’t ignore market demand

The most fundamental thing when starting a business is to figure out whether the products or services you provide now or in the future really meet the market needs. This requires market analysis, understanding the target audience and risk assessment.

Dor Konforty, CEO of Synereo, said:

“Generally speaking, there are things that are ultimately not going to work, but companies are launching a lot of projects without carefully studying existing solutions from academia.”

BTC.sx CEO Joe Lee agreed with this statement and added:

“The long-term goal of a digital currency startup should be to target customer needs, meet their growing demands, and launch service products that meet their requirements.”

He said:

"If demand for your services decreases over time, your business goals may not be sustainable. Companies should focus on providing stable services to users, which will not only benefit the company itself, but also the economy of society as a whole."

The Bitcoin price bubble in 2013 is a good example, when digital currency-related startups emerged like mushrooms after rain. But after the bubble burst, coupled with the collapse of Mt. Gox, the price of the currency continued to fall, and many companies such as industry giants BitPay, the Bitcoin Foundation and mining companies were forced to downsize.

2. Don’t ignore (government) laws and regulations

Even if you disagree with the country's regulatory regulations on digital currency, if you refuse to comply, it will not only be your company that suffers, but also your customers.

Gregory Simon, CEO of Ribbit.me, explains:

"If you're a sole proprietor, you can make decisions without regard to the rules. But if you have multiple partners, you have an obligation to protect their investment and put their best interests first, which means you have to follow all the laws."

"Disregarding the law is at best a way of playing with fire, and at worst a way of breaking the law."

Additionally, in the crypto space, becoming a compliant company will not only put you in the news, but will also increase the confidence of investors and potential customers.

Ronny Boesing, CEO of Denmark-based CCEDK Exchange, said:

“Compliance with KYC (know your customer) policies is the only way for companies to grow in the future and gain wider public acceptance. So even countries like Denmark, which do not require KYC policies, still need to achieve compliance in order to grow globally.”

3. Don’t raise funds through token crowdfunding (unless the token is valuable)

According to Simon Dixon, CEO of BnkToTheFuture.com, crowdsales have become a “very innovative” form of funding for startups. However, there are potential pitfalls, especially regarding legal compliance and “price gouging.”

Dixon explained:

“Investors should be cautious about token crowdsales. Although trading prices appear out of thin air in the market, once they appear, it is very easy to cause price gouging before reaching a reasonable price (usually below the crowdsale price).”

Therefore, if you can guarantee investors a price of $20 per coin, then this will undoubtedly bring you a lot of attention. However, the real market is often different from expectations, so be prepared to face the consequences when you cannot fulfill your promises.

Dor Konforty added:

“I think token crowdsales only work if the tokens have clear use in the system being created. Right now, most crowdsale tokens have no value in themselves, including Mastercoin.”

Perhaps the most important factor to consider when crowdfunding is that you and your customers need to know exactly what you are selling. Dixon warns that both startups and investors "need to be very careful" about this. Because the nature of the sale has changed, selling equity instead of products could be considered illegal.

“If a company sells tokens to investors as an alternative to equity, then this business activity will be regulated under international securities laws.”

He concluded:

“At the same time, if the ‘crowdfunding’ is selling tokens that function as products rather than equity, then raising funds through Bitcoin or issuing new coins can be very effective.”

4. Don’t be too focused

Banks and other centrally held entities are undoubtedly terrified of Bitcoin, especially decentralization, a term that has become a banner hoisted by crypto anarchists and startups targeting commercial security and tech-savvy users.

Although there are still many difficulties on the road to decentralization, decentralizing the operations of your company is a good step towards increasing the security and flexibility of your products (services).

Bitnation CEO Susanne Tarkowski Tempelhof said:

“Decentralization is a new word that is easily half-understood. As a result, people often forget what it was originally meant to be. Decentralization has a specific function: it is extremely resilient because there is no need to worry about the ‘center of power’ being destroyed.”

She emphasized: "Technology that supports decentralization is also the key to achieving decentralized management, financial allocation, and communication." This is a long and difficult process, but it is a necessary process for the long-term existence of decentralization.

“Our company estimates that it will take about five years to fully achieve decentralization across all corporate departments,” Tempelhof concluded.

Simply put, if something goes wrong, such as decentralized storage and management of customer (fund) private keys, hackers' lives will become difficult by breaking the whole into a decentralized method.

5. Don’t underestimate hackers

Late last year, an anonymous white hat (meaning well-intentioned) hacker stole 250 bitcoins after discovering a vulnerable address on an online wallet provided by Blockchain.info. Although the story ended happily, the hacker returned the bitcoins, and people learned a valuable lesson: don’t confuse complacency with security.

Sergej Kotliar, CEO of Bitrefill, explained:

“Obviously, it’s important to know that you’re controlling online currency that could be stolen. Almost every exchange has been hacked to some degree, and wallet security is still a big issue that can’t be ignored.”

“Hiring white hat hackers is one way. Another is by limiting exposure, such as not holding Bitcoin online,” he suggested.

Therefore, it is always a good way to sleep soundly by testing your security in real-world conditions. Getting closer to your enemies by hiring white hats is definitely one of the ways to ensure better security.

"White hats are an important part of ensuring long-term development, as they can remind hackers not to do anything less ambitious," added Ronnie.

6. Don’t bet everything on Bitcoin

We often hear this sentence: "Bitcoin may fail in the end, but its technology will be preserved." Indeed, Bitcoin has achieved unprecedented success. Other second-generation currencies are also eyeing the position of the leading digital currency.

Aaron Siwoku, founder of Toast, warned:

“Don’t base a business model on the idea that Bitcoin could be the world’s new currency. Base a business model on the idea that blockchain could be the new paradigm for distributed linkage of financial services and the liquid liabilities associated with them.”

Although Bitcoin has great potential, it is not a panacea that can cure all financial problems. Therefore, putting all your chips on Bitcoin may be a serious mistake. When Ripple, BitShares, and "Dollarcoin" become the new favorites of investors, Bitcoin may fail because it cannot overcome its own problems.

Another is to consider a specific niche that could use a coin that offers benefits like greater anonymity or is designed specifically for a particular industry to replace Bitcoin. This option becomes increasingly important as the second millennium continues to transform traditional banks and cryptocurrencies gain legitimacy.

Gregory Simon explains:

“Like any industry, different consumers have different needs. I expect Bitcoin to cater to a specific market rather than the entire market. Bitcoin will not fail. On the contrary, it will continue to grow. But it will become smaller and smaller, accounting for a smaller and smaller share of the rapidly growing distributed ledger industry.”

He concluded: “As an entrepreneur, you should understand the relationship between the entire distributed ledger industry and the opportunities that Bitcoin may bring to your business.”