It’s All Subjective Valuation

Dan Finlay
Jun 10, 2018 · 8 min read

An exploration of valuing unenforceable promises, and how they can take us beyond the current economy and enable a very different one.

How much is that thing worth to you, in a unit that you care about?

When I was my poorest, scrappiest, most desperate, working four jobs at once, I would tend to think of money in terms of the number of burritos it would afford me.

I remember getting a raise where I realized “this is equal to a burrito every day if I want one.” That was the first day I ever felt like I was economically alright. It was an important threshold for me. I still saved up those burritos, but knowing I had them was something special.

What else would you really need, but a vault of these that held their value?

In the cryptocurrency scene, value is becoming a pretty confusing topic at times. Sometimes it seems like people are printing money out of thin air. There are amazing conversations taking place about what it takes to value these new tokens, and really I’m way behind that art, but I’m going to bring a line of thinking to the topic, coming from some research I’ve been doing on the topic of peer to peer web of trust economic systems.

In this article, I hope to get you thinking about how using your social network to help estimate the value of new cryptocurrencies can help enable new kinds of economics, which might help alleviate a variety of social ills.

To see how, first we need to ask the basic question, how do you estimate the value of some strange token that someone offers you in exchange for your wares?

The obvious first thing we all can do is look at our public markets, and their depth. If a token is traded on a public market, it means that some amount of that token is being speculated on freely amongst strangers, to you and the original token issuer. It doesn’t mean that it’s the right price, but if the market is deeper than the quantity you’re being offered then it’s basically insured, and if the token has been acceptably stable (or appreciative!) over a decent period of time, you might gladly accept it.

These public markets are not necessarily accurately priced.

In a depth chart like this, you can see the number of purchase orders at different price points.

On one hand, the token could be far under-priced, relative to what it would eventually be worth. If I sold burrito-coins now, but did not have a burrito shop yet, I would have to sell at a discount, since there would be reasonable doubt that these coins would ever be redeemable for anything. The price may be low, even when eventually they may be worth more.

Obviously people closer to the token issuer have a better sense of what that token is worth, since they are more likely to know whether the person is credible or a charlatan. In fact, if I came to you and offered you a burrito coin, and you’d seen me building the shop, and you’d tasted the burritos I’d been testing in my kitchen, and you’d met the excellent staff I’d been training, you’d probably gladly treat those tokens as the value of a burrito regardless of what public markets said.

In fact, that exact kind of intimate “inside” knowledge of my trustworthiness is exactly what every other potential recipient of burrito coin would most want to know from you, especially if you’re a person that they trust.

So let’s say you’re this good friend of mine, and you make hats that everyone loves. Your hat-coin has a stable price on public markets. If you knew that my burrito shop was likely to take off, you could do either or both of two things that would help get me off the ground:

First, you could buy up my burrito coin with your hat coins. Naturally, this gives me hat coins to spend. You could even mint your own hat coins to trade with me, and so you could get as many burritos as you could negotiate with me for your hats.

This would instantly give me the spending power of the hats you gave me, but no more. Also, since you minted hat coins to pay me, you have more outstanding coins, which could look like you were inflating the value of your currency, potentially damaging its reputation on the public market, which would probably be fair, because the market would ideally need to account for this new liability holding some of their coins, contending for the hat-man’s time (me!).

On the other hand, rather than printing tons of coins to give to me, you could simply post a standing purchase order for my burrito coins, in exchange for your hat tokens. Without spending a single coin, this creation of a market would give any hat enthusiast the information they needed to estimate a value for a burrito-coin (the price times the depth of the order).

Either way, the tokens issued, or the buy order could even be broken up into tranches at different prices, or could even be configured to algorithmically adjust to market pressures using a smart contract. (This is what Bancor and Curved Token Bonding is all about)

Now when I go around town, I could offer my burrito coin up, and even if they only knew the hat-maker, if they knew what the hat-maker thought of me, they might be willing to treat it as somewhat valuable!

So here is the challenge: What is the user interface and experience that the coffee lady uses to trust the hat man that lets her incorporate his buy order into her price estimation so that she can fairly assess the value of my burrito coin, and either accept it as-is or instantly convert it for the closest currency that she’s willing to hold?

Even if she were suspicious of me, she might be willing to accept a half-hat, half-burrito payment for my coffee, partly on speculation, given the burrito is somewhat underpriced (given that I haven’t opened shop yet), and partly out of a savvy understanding that by allowing me to pay with burrito coin, she is essentially micro-lending within her local economy, thus stimulating activity, and enabling growth in her community that otherwise would not be as possible.

A second powerful thing happens when the new burrito-coin isn’t immediately redeemed for its standing buy order: There is now more money circulating in this economy, and yet no one depreciated anything for it to get there. This economy now has more power to cooperate, incentivize, educate, and build, all because they didn’t run on a person’s bank, and they were good at communicating estimated value amongst each other.

In cryptocurrency, “HODL” is a phrase usually associated with a sort of anti-day-trading speculator, who believes in the long term value of crypto currencies. While this is a simplistic and potentially dangerous investing strategy, holding currency and not selling it is exactly the kind of thing that prevents a currency from losing value. Even the dollar couldn’t survive when everyone was running on the banks at once. People had to learn to HODL dollars before it could become resilient currency, and it seems fair that the same basic courtesy that we extend to central banks might also be right to extend to each other. Spend what you need, but HODL what you can, because it increases the value of what we all can do.

There is something beautiful that happens in that economic mindset, too: The “spend money to make money” mentality of constant-growth-or-death that capitalism has conditioned us to think is normal for the past four hundred years can begin to be replaced by a form of community investment, and conservation of energies.

While the current economy seems unable to stop accelerating its burning of fossil fuels, this is in part because our current financial structure (interest-based lending) requires growth to continue. If we were able to replace traditional interest-based lending with more generous community currencies, we might be able to actually slow down, and just produce what we need, instead of constantly striving to produce more, even when our needs are met.

Today the U.S. alone spends over $70Bn on advertising, and much of that is trying to convince people to buy things they may not urgently need. If we were all invested in the tokens of those companies instead of merely being their prey, we might rather appreciate the value of their service precisely by not buying it! Maybe Charlie Chaplin’s The Kid wouldn’t have needed to break so many windows if people just held enough of his Window-coins to get him by.

Imagine swinging in your hammock in a warm shady breeze, ordering a snack by drone with some of your own freshly-minted promises to help repair the local levy if it were ever found to need maintenance.

We have the opportunity to build an economy where trust and stability is abundant, and scarcity is reserved for stress, speed, pushing engines to their limits, and occasionally doing the critical things that need doing.

Obviously lots of things need doing before we get to the point where work is scarce, but it can all start with us learning to make some promises, keeping them, and not holding each other so tightly to our failures. The way we value tokens should model the way we trust people to try things that they’re able to do. Compare that with the way that students enter careers shackled in debt, or an unfortunately sick person can become buried in medical debt. Do we really believe these people are beyond trust? A freshly graduated student should be treated like one of the most potent possible investments in the economy, not a shrewdly distrusted debt-serf.

Our strategies of valuing each other have been funneled through stuffy and entrenched institutions for long enough. The sooner we learn how to use the tools of personal currencies to build trust and get collective goals accomplished, the sooner we can replace these legacy engines that are quickly destroying the planet and its inhabitants in so many ways.

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