Cryptocurrencies as Fuel
This weekend Fred Wilson wrote a blog post titled “Is Buying Crypto Assets ‘Investing’” that focused on comments made by Warren Buffet about Bitcoin and other cryptocurrencies. Since, there has been a lot of talk online about who is right. Most of it centers around whether cryptocurrencies really represent any value, but most people are missing the core point. As Fred puts it:
But what these crypto tokens are is entirely something else. They are the fuel that powers a new form of technology infrastructure that is being built on top of the foundational internet protocols. Ethereum and EOS are smart contract platforms that allow developers to create decentralized applications (Dapps in the vernacular of crypto). Bitcoin and Zcash are stores of value that allow users to participate in this decentralized application space without the need for fiat currencies.
The reason that cryptocurrencies are so different is that they change the incentive equation drastically, allowing technologies that would have never been funded under old capital structures to thrive. For example, Ethereum is a global super computer that is usable by anyone. From an engineering perspective this is a huge undertaking to build, and with traditional financing methods like venture capital and private equity, it would have likely been considered prohibitively expensive. This is why crypto tokens are necessary. They allow for the creation of networks that could have never existed before.
Now it’s important to ask the question if the currency itself has value. I think the answer is relatively straightforward. Participating in the network has value; Ethereum, Filecoin, Golem etc. provide a utility that has never existed. The token reserves option to participate in the network; you need to use the token to use the utility. Therefore the token itself has value. How much value each token should have is debatable, but I think it’s a huge exaggeration to say the only value in cryptocurrencies is in “how much the next person will pay.”
