Why Do Most Blockchain Projects Fail? My Journey Through Blockchain’s Realities

I remember the early days of blockchain with a sense of almost utopian excitement. The promise was intoxicating: a world free from central authorities, where trust was inherent in the code, and every individual was a sovereign entity.

This vision of pure decentralization, a ‘State 0,’ captivated many, including myself. We envisioned a future where every transaction was transparent, immutable, and controlled by the collective, not by a single point of failure.

Yet, a stark reality has emerged. For every success story, countless blockchain projects have faltered or failed. This isn’t a flaw in decentralization itself, but a fundamental disconnect between the theoretical purity of ‘State 0’ and the practical demands of implementation. This gap, if not navigated strategically, often leads to inevitable collapse.

To understand this, I turn to an unlikely, yet insightful, analogy: the Kumbh Mela.

The Unrealistic State 0

In the grand narrative of blockchain, ‘State 0’ represents the purest form of decentralization: an ideal where every participant is self-sufficient and interconnected without overarching authority. This vision, which captured the imagination of early adopters, is akin to the Kumbh Mela’s ‘pure, independent pilgrim.’ Each pilgrim carries their own map, supplies, and understanding, needing no central guide or authority to validate their spiritual quest.

Similarly, blockchain’s initial promise was of independent nodes, directly connected, validating transactions, and maintaining the ledger without intermediaries.

However, this utopian vision often becomes the Achilles’ heel for many blockchain projects. The allure of absolute decentralization can lead teams to decentralize every aspect, even where it offers no benefit or where costs outweigh advantages.

This pursuit of a ‘pure’ State 0 often results in complex, difficult-to-use, slow, and expensive systems. They become technically elegant but practically unfeasible, unable to attract a broad user base or compete with efficient, centralized alternatives.

This unrealistic pursuit, in my experience, significantly contributes to why many blockchain projects fail to gain traction or achieve their goals. They build a beautiful, decentralized machine that struggles in the messy real world.

State N: The Reality of Blockchain Projects

Now, let’s shift our perspective to ‘State N,’ the organized chaos of the actual Kumbh Mela. While millions of pilgrims arrive, the Mela’s success relies on a highly centralized, temporary support structure. This illuminates why blockchain projects, rigidly adhering to an unrealistic State 0, often stumble.

Consider the ‘Mela Authority’ and ‘Naga Sadhus’ Akhara’ who are crucial for the Mela’s functioning, setting up infrastructure, and guiding rituals. In blockchain, these are ‘Core Developers’ and ‘Mining Pools/Staking Entities.’

Core teams build the protocol and maintain the network, while large pools wield influence. Projects failing to acknowledge these centralized forces, or forcing pure decentralization where impractical, often lack direction, struggle with governance, or can’t implement upgrades. The belief that a project can thrive purely on uncoordinated contributions leads to stagnation.

Then there are the ‘Camps and Tents’ that provide shelter and community. In blockchain, these are ‘Wallets, Exchanges, and Decentralized Applications (dApps).’ Most users interact through these more centralized, user-friendly interfaces. Many blockchain projects fail by prioritizing ideological purity over user experience, building complex backends but neglecting intuitive frontends. Centralized exchanges dominate because they offer ease of use and liquidity. Projects ignoring this reality remain niche.

The ‘Food Distribution & Medical Camps’ are analogous to ‘Oracles and Layer-2 Solutions.’ Oracles feed real-world data into smart contracts, and Layer-2 solutions handle transaction load for efficiency. While enhancing functionality, they introduce points of trust and potential centralization. Projects often fail by underestimating the need for these, leading to limited functionality or crippling congestion, or by implementing them poorly. The pursuit of a purely on-chain solution for every problem leads to systems too slow, expensive, or limited.

Finally, the ‘Mass of Unaware Devotees’, who are pilgrims who follow the crowd without understanding logistics. This mirrors most blockchain users who use crypto or dApps without understanding intricate details. Projects assuming users will be highly technical or deeply engaged in governance often fail to achieve widespread adoption. Most users prioritize convenience and functionality. Failing to cater to this ‘passive user’ majority, by demanding too much technical proficiency, is a common pitfall leading to limited user bases and project failure.

Why Pure Decentralization Leads to Project Failures?

The journey from the idealized ‘State 0’ to the pragmatic ‘State N’ is a critical lens for understanding why blockchain projects falter. This ‘decentralization drift’ isn’t a flaw in the technology, but a failure to understand and adapt to building large-scale systems. The inability to strategically navigate this shift, recognizing when centralization is essential, is a primary reason for high project mortality.

Firstly, the ‘Logistical Impossibility’ of pure independence at scale leads to chaos. A blockchain project attempting absolute decentralization across all layers often becomes unmanageable, bogged down by coordination overhead, latency, and computational demands. Projects insisting on this purity fail to scale, becoming too slow or expensive to compete.

Secondly, the ‘Need for Coordination’ is often overlooked. Protocols, standards, and leadership are essential for a decentralized ecosystem’s evolution. Projects rejecting centralized guidance or failing to establish effective coordination suffer from fragmentation, lack of direction, and inability to adapt, leading to irrelevance.

Finally, the tension between ‘User Experience and Purity’ is critical. State 0 often prioritizes ideological purity over practical usability, leading to complex, intimidating systems. Projects built by technologists for technologists, demanding high technical proficiency, alienate mainstream users. Failing to provide intuitive interfaces or burdening users with unnecessary complexities in the name of decentralization limits adoption and leads to project failure.

Therefore, the failure of many blockchain projects is a harsh lesson in practical application. It’s a consequence of clinging to an unrealistic State 0 ideal, an inability to recognize State N’s strategic necessity, and a reluctance to adapt to real-world demands. Successful projects understand this nuanced balance, embracing decentralization where it adds value (trustlessness, censorship resistance) while allowing efficient, often centralized, solutions for other aspects (user interfaces, scaling, governance).

A Path to Sustainable Blockchain Success

So, if pure decentralization often leads to project failure, what’s next?

My vision for sustainable blockchain success is a cultural shift: a pragmatic understanding of decentralization, applied strategically. It’s about letting centralized elements remain centralized where efficient, and only moving things with a trust deficit to decentralized systems. Many projects fail by decentralizing aspects that don’t benefit from it, or where costs outweigh benefits.

This shift means asking: ‘What specific trust deficit are we solving, and is decentralization truly the most effective solution?’ If not, a blockchain might not be the right tool for every component. This cultural shift would trigger a gradual, iterative movement towards greater decentralization, not a sudden leap.

We start from our current ‘actual state’ (State N), identify areas lacking trust, and apply decentralized solutions strategically. This creates a more decentralized ‘next state,’ continuing the cycle. For example, identity management, with its trust deficit, is a prime candidate for decentralization, while its user interface might remain centralized for accessibility.

This nuanced approach acknowledges decentralization as a spectrum, not binary. It’s about building resilient, fit-for-purpose blockchain projects that solve real-world problems and achieve widespread adoption. It’s a shift from maximalist ideology to a pragmatic, value-driven one.

The ultimate goal isn’t decentralization for its own sake, but creating more trustworthy, transparent, and equitable systems. Paradoxically, this strategic approach moves us closer to the desired State 0, driven by utility and user adoption, not force.

Beyond the Hype – Building Resilient Blockchain Projects

My journey through blockchain reveals a critical truth: the failure of many projects stems from pursuing an unrealistic ‘State 0’ decentralization. The Kumbh Mela analogy highlights that practical realities often necessitate a more organized ‘State N.’

Success lies in a strategic cultural shift: embracing decentralization where it addresses genuine trust deficits, while allowing centralized elements where efficient. This nuanced approach, focusing on utility over ideology, will lead to resilient blockchain projects that truly fulfill their potential, moving us closer to a naturally decentralized future.

---

Editorial Note: This is a guest post authored by Nikhil Varma, PhD, who is the Technical Lead at AlgoBharat (Algorand Foundation’s India arm), Associate Professor at Ramapo College, New Jersey, and guest professor at IIT Delhi and Molde University. The views and opinions expressed are solely those of the author and do not necessarily represent those of Crypto India Magazine or its editorial team.

Want to write for Crypto India Magazine? Mail us at editorial@cryptoindiamagazine.com