The ACTUAL value of a new token
Institutions are the rules of the game within societies created over the millennia through trial and error or as a consequence of best practice (route of less consequences) some of which are of paramount importance and some of less so.
The vast majority of us have a citizenship, an ID, entertain the idea of a theism with or without an (a) in front, believe in ownership… You will find banks and central governments in every country and the same is a case for currency.
The more universal an institutionalised idea/believe is the more resistant it is to change. But ultimately change always perseveres. Without it there will be no progress. Change is a constant.
The way these institution change over time or what can affect their change and to what degree is still a discourse. Whatever your theoretical background though one is for sure. Technology is the most effective social enzyme in our disposal assuming you can accept the hypothesis that institutions have similar to DNA structures to which I personally subscribe and can be altered by these social enzymes. War is another one and scientific breakthroughs one more.
Fire, the wheel, the engine, electricity… telecommunications, the computer, the internet, the DNA, the decentralised systems, open source, sharing economy…. created changes far beyond the intentions of their original inventors. The most recent ones already eroded even the most resilient of institutions, the very fabric of societies and they will keep breaking down, transform or mutate them and all others less resilient and create brand new ones we never thought possible.
Open source P2P money, our favourite Bitcoin, would not exist if the institutions of money, decentralised systems, the internet, open source or shared economy have not been invented beforehand.
Currency/money as an institution today comprises many ideas like medium of exchange, standard, value storage, legal tender, fiat, commodity … digital, cryptocurrency…ooopppsss
It changed already?
Yes it did and so did the definition of VALUE.
“The subjective theory of value is a Theory of Value that believes that an items value depends on the consumer. This theory states that an items value is not dependent on the labor that goes into a good, or any inherent property of the good. Instead, the subjective theory of value believes that a good’s value depends on the consumers wants and needs. The consumer places a value on an item by determining the marginal utility, or additional satisfaction of one additional good, of that item and deciding what that means to them.”
The key word here is the consumer. Not the government, not the regulators, not the “experts”. The consumer is the ultimate creator of any institution and at present it seems as if the consumer decided to adopt the newly formed institution of supranational cryptocurrencies. What value is he going to place on its marginal utility or how it will metamorphose the meaning of it is to be seen.
What is apparent so far is that:
· the change event appears to be universal
· consumers that “invest” in cryptocurrencies keep increasing exponentially
· the consumers dictate the value of them and not some Bankers behind closed doors
· fiat currency value rules have lost their meaning when it comes to crypto ones
· the notion of complementarity between crypto-currencies each one of which is serving a social need will change the way currency exchange works (see Antonopoulos)
· the inevitable proliferation of ICOs as the favourite method of funding startups is here to stay
· the need for a universal standard to replace the weak gold standard and the current madness of dollar as a currency and a standard at the same time (see my article “ Do we need today’s currencies) is a given
· the present value of bitcoin cannot be explained with monetary value theories and is evident that we are at a tipping point for global economics and trade in general
There were several attempts to create a methodology capable of valuing upcoming tokens the most serious I show was last August https://www.youtube.com/watch?time_continue=343&v=lra34zZJkuk which though utilised tools deriving from existing economic theories of money. I do not think that this is the way to go about it, especially as none of those three approaches can be utilised under a value-complementarity lens where the price of one influences the rest to various degrees.
My view is that we need a different approach one that accommodates the value-complementarity principal.
I am proposing to identify/map for each cryptoasset the societal need it attempts to cover either by itself or in combination with others and value it based on that. I find argument like “bitcoin is the digital equivalent of gold” to be unfounded. It definitely serves several purposes and its subjective value is indeed high but “digital gold” it is not.
How can we achieve this type of mapping and the evaluation?
Take any consumer spending statistics and you will see what people are spending their money for. Take the average for all countries and you have the first part of the equation.
Do the same with the spending of Governments budget and you will see a glimpse of what the internal forces within this country reached a consensus for. Take then the average for all countries and you have the second part of the equation.
Finally look at what is included in measuring a country’s GDP and you will see the consensus on a global scale and the third part of our equation.
Now you, more or less, have a starting point to assess what value humanity is placing in every “asset” class.
Next find the degree of improvement a new cryptoasset can offer to each one of the above classes and you have a solid indication of its subjective value and adoption probabilities. The first will be equal to the value of the amount of currencies that will stop being traded and be replaced by it. The second will be inversely proportional to the global degree of adoption.
I will attempt a more detailed analysis and offering some examples in a future blog but for now I can make a prediction, the result from my personal research. The accumulation of values that will be added to Ethereum by the adoption of ERC20 standard by hundreds of upcoming ICOs will cause ETH price to increase substantially above that of bitcoin eventually!