The Three Pillars of Digital Money Viability
The Digital Money Circle of Value diagram illustrates the components needed to create a viable digital money system. Although there are many components in the circle and some of those components are vaguely described, the diagram effectively breaks down into three categories. Those three categories are the pillars of viability: Community, Technology and Liquidity.
Each pillar is independent but all are interrelated. Each affects the other and if one area is missing the system is not viable. If one or more pillars is restricted or limited then the overall viability and value becomes limited.
Community is the group of people who support the digital money system. The community consists of people, people can be part of larger entities, such as companies. People contribute to the creation and expansion of the other two pillars. Without people to develop the system there is no system. Development potential is limited by the size of the community.
The technology must exist for the digital money system to function. The technology is what makes transactions possible. Technology is created and used by people. More technology options enable further forms of interaction with the digital money system.
Liquidity is the ability to convert the digital currency into another asset. Liquidity can be in the form of exchange for other currencies as well as trade for goods and services. More liquidity becomes available through a larger community. Additional technology can facilitate more types of trade that provide additional liquidity options.
Intersection of Viability
When all of the groups are functional then the currency is viable. Greater activity produces greater viability where there is increased overlap.
Quantification through these pillars can act as a form of measure. This makes it possible to more accurately and easily assess the value and potential of a digital currency and surrounding ecosystem.
Restricting or Limiting Potential
When the potential growth of the community related to a digital currency is small, limited or restricted then the maximum potential of the currency becomes immediately limited.
The potential functionality of the network is directly associated with the available technology for the ecosystem. Functionality corresponds with adoption which is an aspect of the community. Technology with specialized functionality will have appeal to those who require specialization.
Without liquidity the value of a digital currency remains strictly within the technology system. Liquidity and the ability to convert a digital token into a non-digital asset is directly affected by the community and the functionality offered by the technology. More users of the currency will present more opportunities for exchange.
A digital currency that offers the maximum value will offer best potential in all three areas. The size and nature of the community will provide an indicator of the overall potential of the currency. The technology features will determine who may take interest in the network. The available liquidity will encourage users to transact.
These pillars are the foundation for a viable cryptocurrency and also provide a simple mechanism for measuring the potential of a cryptocurrency. When applying a standardized quantification method for each of the pillars a comparative analysis of different digital money systems becomes simplified.
Digital Money Circle of Value
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