Jan 14, 2020
Network Value per Transaction
Cryptocurrency blockchains relay information in blocks that have their maximum size capped as per their internal code. Miners and node operators can have varying preferences given block sizes, the aggregate size of the chain and its verification methods. However, in the most simplistic terms each algorithm, each program, each cryptocurrency, in essence, sends, receives and records information. Consequently, for the purposes of sending, receiving and storing money each cryptocurrency has the basic capability.
Assuming this outlook is valid, everything being equal, users should choose the cryptocurrency that has the lowest transaction fees. However nothing is much equal as different cryptocurrencies have different verification periods and with vastly different hashes, their vulnerabilities are not similar as well.
Nonetheless, I thought it would be interesting to strip out transaction value and just to compare Network Value / Daily Transactions to see how it is spread out among different cryptocurrencies. I do not think this is a reliable value indicator. However, as with Network Value / Daily Return (NV / DR) Ratio, I introduced here, it can be a comparative metric.
Here’s how it looks as courtesy of www.bitinfocharts.com data set:
And as a chart:
Unlike the NV / DR ratio (which below I updated for today), there is a big divergence between different cryptocurrencies. Observations go as follows:
· Each BTC transaction has a value of USD 470,800 — kind of steep it feels.
· On the low end each BSV transaction has a value of USD 7,600 but there is big concern that BSV transaction figure is inflated.
· ETH has a lowly USD 28,990 per transaction value — this might be a function of its relatively frequent use of lower value smart contracts. However, a 16x difference with BTC kind of points out to either some underappreciation for ETH or overvaluation for BTC.
· BCH and LTC stand around 1/3 of BTC but their total transaction numbers are from 20,000 to 40,000 — indicating very limited usage. Therefore the discrepancy can be attributed to limited adoption.
In conclusion, I have a growing sense that the cryptocurrency network values are higher than their current and/or next couple of years usage might require. When I wrote about the potential positive dynamics in the cryptocurrency market back in February 2019 https://medium.com/coinmonks/in-defense-of-the-bitcoin-network-better-news-and-worse-prices-is-a-good-signal-bde5ba479eb — I pointed out to positive network dynamics. There has been limited or no improvement in these dynamics but the price recovery has been more than 100% for BTC. The investor appetite as a store of value aka digital gold seems to be the main driver of the price dynamics. As everyone is in a good mood, let me point out that any change in sentiment could drive the prices lower easily to USD 6,000 for BTC (at which point miner profits are compressed). This could possibly extend to a price range between the start of 2017 to 2019 lows — USD 3,000 — USD 4,000 range. At such levels, the network will survive and cost pressures will hold the prices as the core cryptocurrency holders will most probably stay in. However, if the euphoria building up to the halving keeps going, this could be the resulting correction. On a different note, if prices manage to go down retest the cost base of 6000 +- some volatility; then a more stable price bottom might be achieved. Time will tell..
Addendum — NV/DR updated for today:
