One of the more interesting discoveries we have come across at Monkey Capital is the division of value and utility into dimensional constructs:
1D: Utility
2D: Value
3D: Utility/Value
4D: (Utility*Value)
5D: Value/Utility
In economics benefit is the first dimension of a currency; this benefit is drawn in the form of actual use of the currency. The second dimension of a currency is the value, or the discount offered in terms of price relative to the (potential) benefit that the currency provides, that I obtain. In the third dimension lies (Benefit)/(Discount Relative to Benefit).
If the benefit of the currency can be measured in a form of 10 utils, then the utils must have a price that is in some way equilibrium-based. In other words, the benefit will manifest in the demand scenario, and the discount (or lack thereof) will reflexively acknowledge that demand scenario, creating a reinforcement of the value or lack thereof.
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To understand this better, suppose that we are in New York City in a blackout. Before the blackout, bottled water was selling for $1 per bottle. We can say that the benefit of the water was 1 util, too. After the blackout, due to lacking supplies in water, the measurable benefit that is warranted by the consumer rises in proportion to the scarcity of the product. If the product is 10x scarcer, the water’s benefit will appear to be 10 utils. Thus, as a result of the scarcity in supply of such water, the value (discount relative to util) shrinks commensurately, until water is at a premium to its util.
In 4D, we entertain a new concept. This concept is that of discount-multiplied-benefit. A great example of this is subprime: because many houses were so cheap in value and carried zero percent flexible-rate easily-adjustable loans, the benefit of purchasing houses in which the purchaser derived no direct benefit other than value increase alone (profit) became so widespread that suddenly, there were more home constructions taking place than the benefit they could provide to consumers. As a result, the substantially lower util of the properties created an eroding effect on the discount that was available to the property purchasers (since there were no end consumers who would live in them and thus, a lack of coherent profit-making strategy justified in 4D). The effect of utility eroding value is what happened next, in the fifth currency dimension. As with most fourth and fifth dimensional phenomena, feelings of divine blessing and/or demonic punishment often create a reflexive effect on the underlying third-dimensional Utility/Value, leading to euphoria and corrosion effects on markets for very long periods of time.
Therefore, at different points, it is possible to see each currency dimension economically represented. However, what is far less common is to deliberately engineer the effects of each currency dimension, both positive and negative, to create a more distributed outcome. This is what artificial technology, broadly, and Blockchain, more specifically, attempts to do. A digital asset does this principally by taking advantage of its own status as digital first and foremost. It’s status as a digital asset is what, so goes the argument, it’s core benefit is. This is unusual in currencies. It would be unheard of for example, to say that a bar of gold without any function other than volt storage conferred a benefit of some kind on the consumer that was not in any way value oriented. But in a cryptocurrency’s case, we can say this. As a result, we can also say that the cryptocurrency derives its value from the extant digital benefit relative to its artificially-reduced supply.
The rephrasing of this age-old paradigm, to being one form which value was the dominant article to one in which utility is the force majeur of the item of exchange itself, leads to a set of unusual circumstances. Mainly, it speeds up timeline to value attainment, since if the utility of the three-dimensional currency transaction is already higher than it would be by using, say, a bunch of copper coins, then the end result in the equation (measured in Util/Value) is bound to be as a result much higher.
The downside of this is that this in turn leads to a softening effect of “value assurance” and cerates a culture in which consumers are unable to identify the differences between benefits of the various currencies on offer (Utility*Value). This murky fourth-dimensional picture is resolved in 5D by applying a disordinate amount of value onto the utility of the currency. Note that this is the complete opposite of the case in subprime, where there was simply no more utility that could be heaped on the value to keep the engine going. In this case, value exists in pockets all over the heavily-utilised Blockchain, but over-focus on short-term transaction benefits forces the holder into a model of analysis that keeps reverting back to one-dimensional questions: “but what can I use this stupid token for?”
Our solution is to provide both more enhanced benefit in a use-case context by inserting the digital assets into innovations with strong user functionality (such as games and applications for mobiles) while simultaneously supporting such increased utility with a re-harnessed approach to rounding up the relative discounts available within such transactional assets. One way to think about such value/benefits is as “profitable payments” whereby currencies are used for transacting digitally, and then ultimately for repurchasing the unit of value which originally was used to do so. This reduction in currency seignorage once again improves the value case dramatically, and this in itself provides the bed for use-case benefits to be explored less defensively and conservatively and indeed, to lead to additional value propositions within the currency used by way of making transactions.
Note: For more go to the Pentagram Partners website.
