Erwin Kuhn
Sep 6, 2018 · 2 min read

Thanks for the link, your post is a really clear explanation of the fundamental assumption builders have to work with when they think about value.

Concerning Bitcoin, I’d argue we’re only now seeing its actual value: in a strong economic downtrend, people have a tendency to back out of riskier investments and rely heavily on what they consider their store of value. Bitcoin plays that role in the crypto space for now. The fact that Bitcoin seems to be much more resistant to this bear market than any other coin is a clear sign of that.

But it’s always tricky: is the value created by Bitcoin solely in its use as store of value, or also in its capacities as a medium of speculation and medium of transfer from fiat to crypto by virtue of its liquidity?

Touching on point 1), short answer is we need more actual data about fundamental value to know. Long answer: I think we need hybrid models to evaluate these cryptocurrencies, as they can both have “equity-like” characteristics (right to cash-flows or work tokems) and acquire a monetary premium. Very likely to happen with ETH once the network moves towards Proof of Stake, due to the high optionality ETH offers.

Add to that the possibility of a “governance premium” and it starts to get really complex. Especially if you’re digging out the binoculars and aiming for the horizon: what will it look like near market equilibrium?

Tezos is especially interesting to think about in that regard. Proof of Stake cash flows + monetary premium + governance premium = ??

As for point 2), centralization may be an enabler of technical scalability, but it’s definitely a social scalability killer: you have a central point of failure. What happens if Binance stops buying back BNB because their revenue gets low or they get into legal trouble?

Trust minimization is absolutely key for social scalability. A centralized company may be able to bootstrap network effects much faster (see Binance and BNB or imagine Facebook moving into crypto), but I think it can never outscale a fully decentralized organisation or network in the long run.

Anyways, appreciate the insight, this just sparked some really interesting ideas.