Author: Arad, Crypto KOL
Compiled by: Felix, PANews
With cynicism rife in the altcoin space, the conditions are ripe for revisiting old issues.
(PANews Note: Cynicism here refers to the fact that crypto people are fully aware of what they are doing, but still act calmly)
Why are altcoins valuable?
If you ask the crypto veterans around you, you’ll mostly get boring or superficial answers - usually something like “Oh, altcoins have no value, but I’ll try to profit from them before they go to zero.”
This answer is unsatisfactory because it does not explain why the altcoin market with a market value of approximately $860 billion exists.
“Cynicism is a good servant but a bad master”
This article aims to explain why altcoins exist and how a total market cap of hundreds of billions of dollars is and will continue to be justified. This article is dedicated to the aforementioned cynical crypto veterans.
Stock Exchanges vs Crypto Frontiers
The stock speculation game has long been common sense - everyone knows that stocks should have a certain value.
People have watched many companies rise over generations and their share prices soar. This path has been taken and leaves little room for imagination. There are two ways to make money:
Cash distribution via buybacks/dividends
Liquidation of assets less liabilities
These pathways are well defined, easy to understand, and widely replicable.
The concept of a stock exchange dates back to at least 1602, and possibly earlier. The development of joint stock companies can be traced back to ancient Rome.
In stark contrast, the Crypto market is still little known, despite the fact that many people are immersed in it every day, but the "synthetic imitation body" (referring to Crypto) that imitates the stock market is still little known.
Imagine being a farmer in the 17th century, far away from the legal systems, businesses, and global commerce that were beginning to flourish in cities.
As a 17th century farmer, everything you produced was handmade, had a clear use value, and your trading activities were summed up in exchanging physical objects or metal currency. On top of that, you might go to a big city twice a year at most.
Therefore, the business model is completely unfamiliar to you, let alone the financial model.
You need a common-sense social framework, or “synthetic mimetic” (referring to Crypto), that tells you: “Yes, it is possible to assign value to pieces of paper that claim ownership of some abstract, invisible enterprise, and whose ownership is guaranteed by abstract bureaucracies and alien judicial systems.”
The 17th century peasant corresponds to the contemporary non-internet user.
These people, who make up the majority of the population (like the peasants of the past), have never participated in P2P online commerce, have never bought or sold purely digital goods, have never felt the power of anonymity, have never developed intimate relationships through the internet, have never felt the power of complete control over their own money, and cannot understand the value of a borderless, deterministic financial system that stems from an unstoppable world state machine.
The missing “synthetic mimetic” will tell them: “Yes, significant value can be attributed to cryptographically verified tokens that claim legal rights in a purely digital reality”… or something like that.
Now it’s understandable why people (even some crypto natives) are skeptical about whether tokens have real value.
Because crypto tokens rely on expectations about the unknown future.
We are in new territory. The path to monetization for token holders is unclear on several different levels; the token faces many unknown paths leading to multiple possible outcomes. Not only is the choice of path unknown, but the nature of the path itself is unknown. “We don’t know what we don’t know”.
However, despite the uncertainty of value accumulation, tokens still have value and should have value.
Thinking about value step by step
Probabilities can be built into the favorable and unfavorable outcomes of the token framework. One is that at some point in time, a strong framework to distribute value to token holders will never be found, and the other is that at some point in time, it is found. Probabilities are set without knowing what these paths look like, when they appear, or what they ultimately look like. For simplicity, assume "bimodal outcomes" - either completely figured out, or not figured out at all, and assign a 50% probability to each outcome.
The second assumption is that Crypto will continue to slowly penetrate the financial system and global commerce (especially cross-border and/or native digital commerce). If the value of the global financial system is set at $X, and Crypto's penetration rate is 20%, then the total valuation is $0.2X.
Since the probability of “figuring it out” is 50%, the crypto token can be valued with a total valuation of 0.1X USD.
Therefore, the expected total market value is determined based on the built-in probability.
The next step is to do the same for individual tokens, making a second assumption: not only the probability of “finding the framework”, but also the expected dominance of that token protocol in crypto, and its share of the 0.1X USD.
Here’s the problem: it doesn’t really let you estimate the value of a token. That’s stupid and naive.
Rather, it’s about understanding that even though it’s unclear whether token holders can profit from the success of the protocol, subconsciously, this is how the market can (and does) value tokens at 9, 10, and 11-digit valuations.
The next time you find yourself or someone else rejecting a token because it has zero value capture, or scoffing at holders, imagine the above hypotheticals, consider the possibility that the project could one day succeed, and think about what those future possibilities would mean for its current valuation.
Related reading: The end of the prologue and the beginning of a new chapter: Reflections on the current situation of the cryptocurrency industry and visions for the future
