
Valuing Cryptoassets from the Ground Up - msall
https://medium.com/@sall/valuing-cryptoassets-from-the-ground-up-441ad5a9ff03
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frgtpsswrdlame
But are cryptoassets distinct enough to be considered separately?

So to take your example of gold, if BTC is gold, then is ETH more like silver
or more like a new source of gold? If ETH is silver then there will be some
base demand for ETH separate from BTC but if ETH is just more gold then all
we've done is drastically increase supply. To me it seems that demand for
specific cryptocurrencies isn't really that high while demand for
cryptocurrencies in general is, that makes ETH and BTC seem both like gold to
me and that makes me question the fundamental notion that the appreciating
cryptos have supply restrictions.

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ricksanch88
I've always struggled with this idea that people are trying to apply logical
models to illogical situations. Ideal buying size is not going to save you
from a 10 minute pump and dump.

Optimal holding percent is not going to protect you against a total whale
coming in and selling off because they're bored of the currency.

Trading is based on emotion and the control of that emotion. Buy into
technology you understand and find valuable. The only calculation you need is
to know what you're willing to lose and set your stop loss, everything else is
a bit of a waste in my opinion.

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rytill
> ETH executes all VISA payments

> ETH Value: $0.088

(There are 100M ETH)

Correct me if I made a mistake, but it seems like this is not a stable market.
What's to stop me from buying a large chunk of the supply and sitting on it?
That would increase the value of my ETH because VISA throughput would have to
be maintained. Many others would come to this same conclusion, driving the
price up massively.

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chrisco255
Right, this would place the value of the ETH network at $8.8 million if it
were processing all VISA payments. Something is wrong with the author's math
or conclusions on that point. The value of processing as many transactions as
VISA should be self evidently worth billions.

Another factor in crypto is that especially with proof-of-stake coins (like
ETH is heading toward), part of the security of the protocol is in the expense
of doing a hostile takeover of the network. A paltry $8.8 million valuation
would presume that someone with as little as that could buy up all the supply
(or 51%) of ETH and take effective control of the network.

You're right that attempting to do so would drive up the price, very rapidly.

Another sweeping point the author makes without backing up is the idea of
"infinite competition" in the crypto space. Yes, anyone can fork BTC or ETH
and make their own coin, but miners, stakers, exchanges, users, app
developers, etc, won't necessarily flock to it. "Trust" is not built into the
protocol.

I have no faith that someone who clicks the "Fork" button on Github
necessarily has any idea how to run, maintain, secure, and grow a blockchain
into doing something unique or novel. And I wouldn't stake my business or
assets on it, per se, unless I was convinced that a team of people and a
community was able to spring up around that blockchain.

Network effects matter, especially in crypto-assets. I trust the BTC network,
because it's gone 9 years without a major exploit. I trust it because of the
community, network, and ecosystem behind it. To act as if a fly-by-night
crypto can swoop in and steal that crown so easily is foolish. Anyone can make
a Linux fork, doesn't mean you're going to dominate the desktop market.

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msall
It's a good point that the low market cap could lead people to try to buy a
controlling supply. I explain in the other comment why I think it wouldn't be
profitable on a pump-and-dump basis. On the basis of control and trust, maybe
there still needs to be some assumption that at least 51% is being held by
various parties, enough so that the market trusts the network to not
manipulate. I need to think about that more. I'm really glad you brought it
up.

As for network effects, I find that to be a super interesting question.
Because you're right, there are definitely certain levels of trust that
existing networks have earned, and there's a good argument for why that
creates friction and earns those networks the ability to charge a premium. I
personally don't think that extra friction is long lasting. I'd expect that if
there were indeed a new solution that accomplished the same thing at half the
price, it would get attention and the market would gravitate to it fairly
quickly (maybe not within weeks or months, but years? maybe it depends on the
timeframe you want to consider, and the level of improvement it provides). But
it's a really good point, and something I think about a lot.

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rytill
If you look at it from a utility perspective and discount the network effect,
at a certain point, it becomes economically incentivized sharding.

"We accept any of the 2021 or prior World Bank approved ETH forks." Your
multi-wallet client automatically chooses the one with the lowest transaction
fees (also economically regulated).

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Hydraulix989
What about possible protocol-enforced scarcity/supply-side limits even in the
potential future "mass adoption" scenario?

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rms
I see cryptocurrency as a harbinger of AI, which is the real revolution.
Blockchain is just a tool. People get really confused trying to understand and
develop pricing models for the current state of the world but I see a lot of
cryptocurrency value as reflecting the adoption of AI.

The author's equation produces low valuations at high velocity and this
suggests a use case for low valuation, high velocity cryptocurrency as a
medium of exchange if not a deflationary store of value. I don't think this
currency exists yet, though I get lots of pitches for things that want to be
this while also trying to justify their own value into the future.

In the early days of crypto, libertarian economists predicted that bitcoin
would go to the moon and the USD would undergo hyperinflation. This is clearly
not happening. What I think could happen is a relatively stable USD under the
guidance of the Federal Reserve and a simultaneous hyperdeflation of ETH and
BTC as they become the reserve currency of distributed AI capital
organizations.

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XR0CSWV3h3kZWg
> I see cryptocurrency as a harbinger of AI, which is the real revolution.
> Blockchain is just a tool. People get really confused trying to understand
> and develop pricing models for the current state of the world but I see a
> lot of cryptocurrency value as reflecting the adoption of AI.

This seems like a strange thing to believe. Why do you believe it?

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rms
I don't see nearly as much use case for humans and cryptocurrency as for AI
and cryptocurrency.

I think in the future, the average technologically savvy person will be just
as confused about what bitcoin is and does as they are today and it will
mostly be used to securitize options and derivatives of unprecedented
complexity.

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XR0CSWV3h3kZWg
Bitcoin is pretty bad at offering advanced securities or derivatives.

Really bitcoin is pretty bad at everything except atomic transfers.

Bitcoin is shit at loans, it's shit at writing wills, it's shit at scheduling
payments, it's shit at offering shorts, it's shit at offering options, it's
shit at providing oracles etc.

~~~
rms
Right. I imagine a future where AI capital entities just hold bitcoin and
never do anything with it other than hold it forever to secure the things
they're doing on the advanced financial platforms of the future.

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XR0CSWV3h3kZWg
If the only action your AI takes is to hold bitcoin I've been running an AI
for many years.

Capital that you can not leverage is a disadvantage.

