Lots of dead coins are there because they are a scam. This article points out some of the ways that people have been scammed and what to look out for when buying to a coin.
They have done scams like the following.
- Run away with the money invested.
- Pump and dump the coin.
- Massive premine
- Trick people on a fork or update.
- Have a fake platform.
- Holding users private key.
Run away with the money invested
Pretty much the oldest trick in the book, you are investing into a coin with little regulation, the developers will just wait till the coin is at a set market cap then just walk away with the money. Some cases people have been found and arrested over scams like this. Sometimes they can be very hard to spot. But they end up on the dead coin list after the scam has taken place.
This normally happens on projects when you are investing into something very unstable, like a incomplete platform or idea. So you have little knowledge what the money invested is actually doing. Some coins have put systems in place to stops this. Do your research before investing.
Pump and dump the coin
Developers have a massive influence on the price of the coin, basically they will say they have problems (security flaw, lost coins) to push the price right down and buy in when the price is rock bottom. Then say they fixed and all these amazing things the. That will push the price up and then the developers will do a massive sell off. They might get away with this a few times then no one wants to trade the coin and it ends up a dead coin.
The developers use some of the made money to move onto the next project. RINSE AND REPEAT
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.
Trick people on a fork or update
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.
Have a fake platform
The best example of a fake platform is BitConnect. Link below
Basically they made a platform that you deposit Crypto into and they will make money for you. They were well established and seemed legit. Long story short, they were put under pressure to show there trading system from regulations, turned out they were a Ponzi Scheme. So people ended up losing almost all the money they had invested. Some people lost 100k+ investments.
Holding users private key
When you sign up for a online wallet on the coins main website or a partner website, you put yourself at risk of the developers scraping your online private key, so they have access to all of your funds. This is less common now, but still happens.
Table below filtered to scam dead coins only