The answer in a nutshell is that vaults that are 20% above and below the global average gets less rewards.
Read about the sigmoid curve in farming.
Now you might be thinking, “what if a large farmer instead of having one large vault, breaks them down into 10000 tiny vaults? Haha, I just gamed the system!”
Well, actually doing that is playing straight into our game, it is the incentivized behavior.
You see, even though 10,000 of them might be under the same roof and maintained by one single person, each individual vault will have its own random ID (gets a new one everytime it connects into the network), and in the XOR space it is like each vault being in random parts of the planet, each vault will have their own sets of close groups for consensus.
So even if running a datacenter were cost-efficient, it wouldn’t affect the SafeNetwork security-wise.
The probability of a single entity controlling vaults and controlling a node in its close group of one of its own vault is extremely slim.
The only chance of having some probability of this happening is in the very early stages of the network, like just right after it is first launched, but once it starts becoming adopted by the masses, it will become near impossible for a single entity to compete with the millions of nodes connected to the network.
To have a clearer picture (and especially if you don’t understand what I mean by XOR distances) you should watch this:
The SAFE Network from First Principles: http://www.youtube.com/playlist?list=PLiYqQVdgdw_sSDkdIZzDRQR9xZlsukIxD
Spoiler alert: there are no IP addresses in the SafeNetwork, after the first bootstraping it doesn’t use the IP protocol for its routing.
Tl;Dr
Probably running a datacenter for farming is not cost effective, there is too much overhead. It is much more economical to buy yourself a raspberry pi and farm at home.
Maybe a moderate scale operation might still be still cost-efficient, but scaling it bigger than that it might not really benefit you economically.
Even if massive scaling was somehow cost-effective and profitable, the network’s design would force you to break down your resources to have small vaults matching the average resources of the network.
By doing (2) you might argue that economically you are centralizing the rewards, but you are still keeping the network topologically decentralized and distributed. There won’t be any kind of disruption if your datacenter goes offline.
Lastly but not the least, the biggest weapon against centralisation is the extremely low cost of entrance. Anyone can participate in the farming process, you can do it on a extremely low powered ARM or Haswell processors with hard drives that are getting cheaper and cheaper.
You might be able to do it on your smartphone or from a raspberry pi.
A datacenter or a malicious actor would have to literally compete with the constellations of connected devices around the world.
Also remember that the rewards here are not exclusive (like in mining, one miner taking all rewards), every one has the same chances of getting the reward as long as they prove that they are providing the resources (Proof of Resource).
So a big datacenter farming coins won’t affect the likelihood of a smaller casual farmer getting his rewards as well for collaborating with the network.
Everyone will be able to participate, regardless of how much money you have, regardless of how how cheap your electricity is, and regardless of how powerful your computer is. As long as you have $100 bucks to spend, you might have enough money to set up your first dedicated farming equipment, your vault will be no different from the vault provided by the datacenter.
This is absolutely democratic participation, and no system out there can compete against this.
@Tarak How can stocks revert to their intrinsic value when 3000 mutual funds buy the same 3000 listed stocks rain or shine?
Safe’s Intrinsic value is this: info symmetry
Derived from so called leaders thinking they are entitled to privacy and even organizational secrecy but wanting to replace everyone else’s privacy with a product label. Where the average person loses their privacy we as a group lose our voice and our rights due to loss of exercise of voice because of the fear of the smear that will follow before we even get the first word out.
So power through info assymetry looks like this: Hillary can do what she wants with organizational secracy but anyone else like Julian is supposed to be snuffed out over working to provide transparency. And Donald is entitled to privacy but your info can be sold for profit by strangers- you can only have privacy if you can afford it and even cancerous organizational secrecy if you are special. SAFE’s value proposition is it strips away that info assymetry. It keeps the promise of the internet alive.
This follow up post is unfortunately longer than the original. It’s probably a 20 minute read. Sorry about that. I didn’t have the time to make it shorter and I did get a lot of questions. In this post, I’ll walk through an analysis of intrinsic value that touches on Twitter, gold, bitcoin, Paypal, and MaidSafe. I’ll highlight a potential operational problem in SAFE regarding cost-effectiveness and scale disadvantages. Finally, I’ll offer an example of a crypto coin with a working decentralized governance system.
Thanks for the acknowledgment. It seems like I didn’t do a good job of explaining the intuition, so I’ll try again starting with first principles, which means it’ll have to be more detailed than the original post.
Intrinsic value frameworks are not designed to predict a precise value for an asset, but rather to give yourself a logical framework for how to think about the value and the equilibrium demand. Once you do that, you can begin to ask questions like “What do you have to believe for bitcoin to be worth $5 billion in 5 years versus $500 billion in 5 years?” The purpose of applying an intrinsic value framework to MAID is two-fold: 1) understand what I have to believe for MAID to return 1x, 10x, or 100x as a venture capital investment 2) identify where the key value drivers lie and how that should inform organizational strategy… and share those observations.
Also, intrinsic value frameworks are helpful in thinking about value many years from now. They are not useful in predicting short and medium-term price movements. Intrinsic value is for the strategist, not the swing trader.
Re: Twitter. Even though Twitter is an early stage tech company, its intrinsic value is still defined by a discounted cash flow (DCF) formula. The fact that it’s an early stage company simply means that the range of outcomes will be wider than if you were applying a DCF to Apple. Despite the greater degree of uncertainty in estimating Twitter’s intrinsic valuation, the DCF formula is still very useful in valuing Twitter because it allows you to answer the question, “What do you have to believe [in terms of monthly users, ad pricing, margin expansion, etc.] for Twitter to be worth $10 billion in 5 years v. $50 billion in 5 years?” Twitter and Apple are for-profit companies so the DCF formula is the theoretically sound way to estimate equilibrium demand for their stock, and that theory is well-established and well-known. However, DCFs are not relevant for cryptos since there’s no equity ownership, and so it’s necessary to discover a new logical framework that can predict equilibrium demand for cryptos. That’s what I’m trying to do (and I think I did it successfully).
Re: Bitcoin. Bitcoin’s biggest potential sources of intrinsic value are two-fold: 1) store of wealth 2) payment mechanism for goods and services. I’ll analyze both below:
Bitcoin as a store of wealth: Contrary to conventional wisdom, bitcoin doesn’t have any intrinsic value as a store of wealth, but gold does. If you believe that bitcoin exists in isolation, then yes it can function as a store of wealth given its limited supply. The problem is that it doesn’t exist in isolation. There are hundreds of crypto coins already and new ICOs are happening every week. So, while gold may see a low single digit growth rate in supply every year, crypto coins will continue to see hyperinflation indefinitely. The same problem doesn’t exist for gold because there is a finite number of precious metal types (e.g. silver, platinum, etc.) and new types of precious metals are not being discovered every week. If you disagree with me and believe bitcoin can function as a store of wealth like gold, then you’d look at the amount of wealth sitting in gold (~$35 billion in publicly traded gold ETFs, and a few trillion dollars in private gold investments) and you’d estimate what % of the market bitcoin can take from gold and you’d likely gain some conviction that bitcoin will eventually be worth somewhere in the neighborhood of hundreds of billions of dollars. The fact that bitcoin can’t function as a store of wealth is not obvious to most right now so I suspect some sizeable portion of its current market cap is explained by the perception that it can function as a store of wealth like gold. However, as alt coins continue to be launched and gain in market share versus bitcoin, I suspect my argument will become more obvious. For those reasons, bitcoin has no long-term intrinsic value as a store of wealth.
Bitcoin as a global payment mechanism: This is where it becomes potentially interesting. To create the right valuation framework for the value of a cryptocurrency that facilitates a payment mechanism, you have to understand what M1 money is first, because in the fiat world, M1 money is the currency used to facilitate payments. The M1 money supply represents the total value of funds in non-interest bearing checking accounts and the total value of physical cash. M1 is not a good place to put wealth because M1 offers no interest income and you’re better off putting that wealth in an interest-bearing savings account with similar risk. And so, people generally minimize the amount of money they leave in M1, but they can’t bring M1 to zero because they need to have something in M1 to facilitate the daily purchase of goods and services, since the funds in interest-bearing savings accounts are typically locked up for anywhere from 24 hours to years depending on the specifics of the savings account (the bigger the lock-up, the bigger the interest income). The more money they spend in purchases of goods and services (which can be represented by GDP), the more money they need in M1. Precisely how much more? Well, there’s a formula in economic theory called the quantity theory of money that specifically describes this relationship. The equation is M=GDP/V whereby M = M1; GDP = GDP and represents the annual purchases of goods and services in a system; and V = velocity of money which I’ll explain with examples.
In the US, M1=$3.4 trillion, GDP=$18 trillion, and V=5.3x. If we make several simplifying assumptions and look at this on a per capita basis, it implies that the average US national spends about $60k/year in goods and services and leaves about $11k in M1 to facilitate that spending. The $60k and $11k numbers are higher than the true experience of an average US national since personal consumption only represents about 70% of GDP and M1 with the rest coming from government spending and corporate spending. Regardless, this still gives you a framework for how to think about the order of magnitude of the relationship between M1 and GDP. If you’d like, you can ignore the numbers I gave and just try this for yourself to make it even more intuitive. Look at how much you spend every year in goods and services (call that your personal GDP), and then look at how much money you usually leave in your non-interest bearing checking account and physical cash stack (call that your M1). Do the math and figure out what your personal V is. I suspect for most of you it will range somewhere between 1 and 10, and it turns out that in the US, the average V is about 5x.
Now let’s use V=5 (which we already observed as being true in the US economy) to predict the M1 money supply in other countries given the observed GDP in those countries. The math would be Predicted M1=GDP/5. I did the math for several countries and this is what I found: For Mexico, Indonesia, Australia, and India, the predicted M1 is correct within an error margin that’s less than 2x (e.g. for Indonesia, the formula predicted M1 would be $161B but it’s actually $90B or a 1.8x error margin). For Canada and South Korea, the predicted M1 is correct within an error margin that’s less than 3x. For the UK and the Euro area, the predicted M1 is correct within an error margin that’s less than 4x. The reason for these error margins likely has to do with cultural or institutional differences across countries. Going forward, I’m going to use V=3x since that’s the GDP weighted average of V across the major countries.
We can try to use this formula to predict Paypal’s M1. PayPal facilitates both credit and debit payments, and Paypal’s M1 represents the prepaid customer balances sitting in customer accounts to fund debit payments. Paypal’s transaction volume last year was $350 billion. It doesn’t seem like Paypal splits out debit versus credit transaction volumes, but if you look at Visa and Mastercard, about 43% of transaction volume at Visa and Mastercard is debit or pre-paid, so using 43% as the assumption, we can estimate Paypal’s debit/prepaid transaction volume is about $150 billion (43% of $350 billion). Using V=3 as discussed previously, we can predict that the value of Paypal’s M1 (i.e. customer deposits in Paypal non-interest bearing customer accounts) is $50B (i.e. $150B/3). Turns out the actual M1 reported in their 10-K is $14B, and so we can say we just estimated it within a margin of error of 3.5x, a similar margin of error to our experience predicting M1 for different countries. The fact that the formula overestimated Paypal’s actual M1 doesn’t surprise me since Paypal’s utility is limited versus the traditional M1 checking account from which we derived V=3. The traditional M1 checking account can be used to buy virtually anything. However, Paypal tends to be used to buy things online or to make P2P transfers but not so much for offline purchases (the vast majority of the economy). So, given the decreased relative utility of Paypal versus a traditional checking account or versus Mastercard/VISA, it does seem natural to me that V would be higher for Paypal. Turns out that in Paypal’s case, V is probably around 10x.
So, what does M1 have to do with bitcoin’s value as a payment mechanism? If bitcoin succeeds at becoming a payment mechanism, the equilibrium demand for bitcoin can be represented by M1=GDP/V, and in the crypto space, M1 is defined as the market cap of the cryptocurrency. Since we already explained why bitcoin is an ineffective long-term store of value, no one wants to hold non-interest bearing bitcoin, but you hold it in as small a quantity as you need to in order to facilitate transactions on the bitcoin payment network. And your equilibrium demand for bitcoin is formalized by M1=GDP/V. So, what’s the potential? Well, if bitcoin ever gets to the point where it facilitates $150B of transaction volume for mostly online purchases (like Paypal’s debit/pre-paid offering), then bitcoin’s M1 (i.e. bitcoin’s market cap or the equilibrium demand for bitcoin) will be about $14B (like Paypal) and I’d assume a 3-4x error margin.
If you want to dream bigger, you’d look at the $4.5 trillion of debit/prepaid transaction volume conducted over the VISA/Mastercard network. Let’s say bitcoin gets 30% market share. That would imply bitcoin facilitated GDP = $1.5trillion (i.e. 30% of $4.5 trillion). Assume V=3x since if it reaches VISA/Mastercard utility where it’s used just as much for both online and offline purchases, V should be similar to the 3x we observed as the GDP-weighted average for M1 across major countries. This implies bitcoin’s M1=$500 billion (1.5 trillion / 3x). So, if bitcoin got 30% of the debit/prepaid payment volume flowing through VISA+Mastercard, the expected bitcoin market cap (based on the equilibrium demand for bitcoin as M1) would be $500 billion with a 4x error margin or ($125 billion – $2 trillion).
That would be the dream; however, my view is bitcoin doesn’t have a good roadmap towards becoming a payment mechanism. For example, some of the key obstacles include 1) lack of recourse for merchant disputes 2) consumer pays the transaction fees unlike Paypal/VISA/MasterCard 3) lack of switching incentives to combat established network effects and to compensate for the currency exchange risk of holding M1 in bitcoin when goods and services are denominated in local fiat. That said, if bitcoin does become a payment mechanism on the order of MasterCard, then the equilibrium demand for bitcoin would likely be much higher than today’s market cap. I personally wouldn’t make that bet, but to each their own, and at least now you have a rough sense of what you have to believe in order for bitcoin to be worth $500 billion.
Now for MAID. MAID can see demand for its currency from two sources: 1) payment mechanism for storage/communications (see analysis below) 2) payment mechanism for goods and services in real world (see prior bitcoin discussion for analysis since the potential and obstacles are similar).
The equilibrium demand for MAID as payment mechanism for storage/communications can be formalized by M1=GDP/V. AWS charges $20/TB/month, Dropbox charges about $6/TB/month. So, let’s say SAFE charges the same as AWS, I’m actually first of all surprised by how SAFE will manage that since it implies that the average farmer offering 50GB of storage will earn $12/year (assuming $20/TB/month). And, if you actually need to have four copies of everything that’s uploaded, the farmer is then only earning $3/year. Is that kind of farming rate going to incent enough farmers to join the system? I’m a bit skeptical. I personally couldn’t be bothered for $3-$12 a year even if it is excess storage on my PC. It appears to me there is a decent chance that by insisting on creating scale disincentives at the farmer level, SAFE may struggle to offer a competitively priced storage solution, and will limit its storage market share to the highest-cost highest-security niche. The high cost / high quality niche in most tech markets tends to be a much smaller piece of the pie, so it may be wise to reconsider if there are more creative, cost-effective ways (through code, incentives, or governance) to better balance the pursuit of decentralization versus cost-effectiveness. For example, if farmers could earn farming rewards linearly in relation to storage offered (i.e. no scale disincentive) but only got one vote per account (i.e. one vote per farmer) on governance issues, that might help since it would enable economies of scale in storage while still ensuring that governance remains decentralized. That’s one idea. If that idea has problems, maybe it will inspire someone to think of a better one.
So with that context, let’s say SAFE still manages to succeed and reaches the size of Amazon, Facebook, Google, and Microsoft combined in terms of storage. A 2013 article estimated those four had 1.2 million TB of storage and storage is doubling every 3 years, so by 2020, those 4 firms will likely be handling about 4 million TB of storage. So, at $20/TB/month and 4 million TB, you’d get to SAFE storage annual GDP of $960 million. Using Paypal as the benchmark, I’d suggest that the right V would be V=10 and not V=3 since to achieve V=3 utility needs to reach VISA/Mastercard/checking account type levels. At V=10, that implies SAFE M1 (i.e. SAFE market cap) of $96 million with a 4x error margin of $24 million - $384 billion. I realize I’ve left out the potential value from secured communications but unless someone wants to do the work on that, I’ll assume it’s worth about the same as the storage angle so then the $24 million - $384 billion estimate would go to $48 million - $768 billion. For context, the current fully diluted market cap for SAFE at 4.3 billion coins is $650 million. If you disagree about V=10 go ahead and do the math with V=3. It doesn’t change the result by more than a factor of 3-4x.
I used 4.3 billion coins in the calculation and I got some pushback on that. I do understand coins are both generated and destroyed in SAFE, but at this type of scale, I have to believe MAID will be at the maximum number of coins unless I see someone offer a formal explanation of why the maximum number of 4.3 billion coins is just theoretical and will never actually be reached, and it would help if that person could formally show what the practical maximum would be for coins outstanding.
The most important point from all of this for the strategist is that the potential intrinsic value from Safe coin as a payment mechanism for storage/communications ($48 million - $768 billion) is easily dwarfed by the potential intrinsic value from being a payment mechanism for goods and services in the real world ($14 billion - $2 trillion depending on if you reach Paypal’s scale or MasterCard’s scale). This should not be surprising since the GDP associated to storage/communications is naturally going to be a small fraction of the GDP associated to everything else in the world. If divisibility happens, SAFE appears to have the technical features necessary to be a payment mechanism on par with VISA/Mastercard/Paypal and therefore have a chance at that $12 billion - $2 trillion intrinsic value; however, it won’t happen unless there’s a thoughtful strategy on how to deal with the current obstacles to adoption as a payment mechanism (as discussed previously in the bitcoin section).
I think the best working example would be DASH. IOHK (crypto academic think tank) studied DASH’s governance system, liked what they saw, and decided to promote a modified version of DASH’s governance system for ETC (which IOHK is playing a lead role in now). There are a few things that DASH is doing really well that are worth studying and copying:
10% of miner/staking rewards go to a treasury. Anyone can propose projects and the most popular projects by vote get funded by that treasury. It’s decentralized capital allocation. DASH is dramatically more well-funded than bitcoin and any other crypto currency because of this. At their current market cap, I think it’s about $5m/year in funding and if that market cap ever reaches bitcoin’s, it would be around $150m-$200m in annual funding. That money allows you to pay developers a market wage and it allows you to hire more developers to accelerate the roll out of new features. That money allows you to pay for consumer support services which are necessary if you really want to gain adoption (technology rarely sells itself without some sales/marketing/customer support). It allows you to fund switching incentives which is critical since consumers do face barriers to switching.
The second thing DASH did really well is they decided to hire Ryan Taylor. I don’t know the guy personally. What I’ve read is he was hired a year ago as their head of finance and he has a background in the payments processing industry. From what I can tell, DASH appears to be the only crypto currency that has a legitimate strategy for how to overcome the many obstacles to adoption as a global payment mechanism for consumers. Much of their current strategy comes from Ryan’s experience in the payments industry. Ryan also studied at the Value Investing Program in Columbia Business School (it’s a well-known investing program among US professional investors) so I’m fairly certain Ryan understands how to think about intrinsic value and capital allocation. SAFE doesn’t need someone like Ryan Taylor today, but I’d suggest that a few months before you launch, once you have line of sight to a launch date, it would be a good idea to hire and empower someone like him who has a strong background in the payments industry.
I disagree in your definition of intrinsic value.
This is like saying that a company offering services has no value because it doesn’t have inventory to sell.
Although the analogy is crude, I hope you get the point.
The point is that you are using the wrong tools to valuate something totally different.
The intrinsic value of bitcoin relies on its utility, I still don’t know how to quantify it because it is generating a whole new industry behind it’s unique property of storing perpetually transactions on a decentralized blockchain.
And now with developments like Rootstock it is primed to take over the world of smart contracts.
Be careful at being shortsighted and only seeing what we have now and not envisioning what it is to come.
When the first refrigerating method was discovered it was never understood nor expected of it’s future role in kickstarting a whole new field of science: material engineering.
Also, when the first copper wire was invented its value wasn’t really fully understood because they really didn’t understand the implications of becoming the cornerstone of every single technological development. Tell me how many industries did the copper wire spawn, how many different applications were discovered from it’s physical properties?
Bitcoin today is that copper wire, and comparatively we are barely grasping how to send Morse code on a telegraph, we are barely scratching the surface.
Saying that it has not intrinsic value, it is a hasty conclusion.
If you don’t see the value of programmable money (or programmable gold, would be more accurate due to its hard limit in supply) then you are missing the big picture here.
I would agree that probably its current market price is beyond it’s fundamentals, but to claim that it has NO intrinsic value is risible.
Btw,
What does exist in isolation? Really?
What is the value of anything without demand?
This doesn’t make any sense. You are implying as if different metals were fungible. If there were hundreds of different metals out there being discovered or invented on a lab, it would never affect the demand of gold.
A woman who wants a golden necklace won’t stop her purchase decision because there is also a necklace in titanium available.
The argument of having less competing metals makes no sense at all, and this is no cause for inflation.
Creating 100s of new different metals every month will not dilute the value of gold or any other metal.
Let’s go to another example that is way more clear, so we get rid of the hypotheticals.
Diamonds are the perfect example. The discovery of cubic zirconia didn’t do shit to the diamond market, and other simulants like glass, rutile, white sapphire, etc… didn’t affect the diamond market.
Not even the artificial diamonds are a threat to natural diamonds for now (but as time passes the lab-created diamonds will become more and more indistinguishable from mined diamonds, and that is when the actual supply of diamonds will truly shift and become devaluated if the supply can be cranked up at will. The analogous scenario in bitcoins can only happen if the core developers accept modifying the total of 21 million bitcoins, which is in their self-interest to make sure that it will never happen)
As long as the actual natural diamond supply doesn’t change, it won’t devaluate the value of diamonds.
The other cryptocurrencies are the same exact thing, it is absolutely nonsense to consider that there will be an inflation of bitcoin because there are hundreds of shitcoins being traded.
My impression is that you are financially trained, but don’t have a strong grasp of economics.
Hi @Tarak, interesting (if a bit long ) post. I’ll just address the first few salient points as I see them in the opening paragraphs, then maybe comment further later on, just to make it a bit more digestible to the reader.
Hmmm…so working from these potential error margins, I calculate, using my own calculus based, differential equation and logarithmic, eliptical curve formula that the maths could at a minimum be 100% wrong…
Joking aside, I think given these error margins, you’d have to concede that this is not an exact science - there’s an element of reading the tea-leaves here?
(Bitcoin)[quote=“Tarak, post:25, topic:12979”]
The same problem doesn’t exist for gold because there is a finite number of precious metal types (e.g. silver, platinum, etc.)
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OK, I have to disagree with your reasoning here:
Essentially, you are stating that Gold has few likely competitors and mention other precious metals, whereas Bitcoin has many and mention other crypto-currencies - therefore you conclude that Gold has inherent value, whereas Bitcoin doesn’t?
What you forget is that Bitcoin could potentially replace Gold, thereby negating your argument completely - what applies to one, would apply to the other.
I think you are right to be sceptical that 1st World farmers would be incentivised by farming rewards. However, this is not the main incentive for users of Safenet - it is deliberately designed to prevent the incentive of creating large scale farms for profit.
This may be difficult to get one’s head around when using Bitcoin as your comparison. By way of analogy, if you think of Bitcoin as incentivising the clearing of rain forests to plant vast fields of Soya to enrich the few at the cost of the planet (expensive and inefficient use of natural resources); then SafeNet would be analogous to creating small fertile plots, from the desert in 3rd World areas where individuals can grow a few carrots and exchange for a neighbour’s cabbage - micro-economies can emerge.
There are many more people, much more potential for growth, much greater incentives for use than the Bitcoin profit motive as it applies in the West.
Please, maybe amend your calculations to include this potential , rather than intrinsic value.
My issue is I’m not sure that I’m always quite sceptical about the tools used to value technologies, or in this case assets. There are so many variables at play that these frameworks and models are unable to capture them all. That doesn’t mean that we shouldn’t try of course, but rather we should be very open minded about the results they produce. For example, I would imagine that Twitter didn’t look particularly amazing on paper before their IPO and has lost $2billion since 2011. But if you had been an early investor and exited during their 2013 IPO you would have made a fortune. That IPO valued them at $24billion.
Would an intrinsic value framework have predicted the value of this investment? To be honest, I’m not sure many models do. Venture Capitalists, who make their living from trying to predict the next future valuations, have a portfolio strike rate of typically between 1 in 10 or 1 in 12 of their investments becoming a moonshot. There are too many variables at play.
It would be quite interesting to see how accurately the model would work looking at the valuation of bitcoin during 2009/2010 and where it is currently at.
Interesting. How is the treasury structured .i.e. who is on it, how was that decided and how is the voting weighted?
Firstly, crypto’s are all unique and have different values, just like metals, and unlike gold most have a finite supply. There is no way to know how much gold will be mined in the future or when it will come. Perhaps we’ll crack alchemy and be able to make it for free or start mining comets with thousands of tonnes on them? There will only ever be 21M btc. It is most certainly a store of wealth. I use it as such, so do most of the people on this forum I’d imagine. To say it isn’t is to ignore reality. Perhaps it will become obsolete one day, but right now, it is a store of wealth and a far more convenient one than gold could ever hope to be. There are no signs of BTC going anywhere any time soon. The fact that it could does not prevent it from being a store of wealth. Gold could also become obsolete and easy to manufacture. All that is required for either is technical evolution and displacement. That is what is happening now imo. BTC is slowly replacing gold, and its market share will continue to grow.
SAFEcoin is also unique. It can’t be hyper-inflated by the creation of new cryptos since only SAFEcion can buy the resources on the network. Likewise, the creation of new alt coins has never taken market share from BTC. BTC has continued to rise along with the alt coins, all of them growing in market share together. Saying that crypto’s suffer from hyper inflation due to dilution and the creation of other coins is crazy because that is not and has never happened. All of them are unique and have their own value propositions, or they are unoriginal copies and they have a low value proposition. The demand for their innovations creates the price. The demand for all is still rising and is set to for a long time to come. [quote=“Tarak, post:25, topic:12979”]
so it’s necessary to discover a new logical framework that can predict equilibrium demand for cryptos. That’s what I’m trying to do (and I think I did it successfully).
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No offence, but you really didn’t.
It takes months to really wrap your head around SAFE’s value proposition, you haven’t even scratched the surface despite writing an essay above, so this just reads like a very long economics lesson rather than a relevant look at what maidsafe are building and the potential demand and value for the coin.
Intrinsic value analysis is only as useful as its application. It can work for some very simple assets like goods, stocks and bonds etc. It is also well known as the “bottom up” technique. So it’s pretty damn useless in context of a very complicated value proposition to measure the bottom couple of % and wok from there. If you use that kind of fundemntal analysis to inform crytpo investments then you will never find a buy opportunity below the intrinsic target you set yourself, they will just seem forever overvalued to you, even as they continue to rise and rise. SAFEcoin absolutely requires the top down, macroeconomic perspective to make enough of a forecast to do any kind of potential long term risk-reward analysis - which should be the real ‘investor over trader’ (long-term fundamentals/short-term trends) distinction imo.
I think @Tarak’s bitcoin v gold point is valid (if you read it carefully) - gold has become universally trusted to be a store of value because the supply/inflation is trustably limited. Nobody has found a way to significantly affect this despite constant searches for supply, centuries of alchemy (to transform base metal into gold), or as he says, discovering rival materials (metals or otherwise). There are alternatives, from diamonds to cryptocurrency, and other assets, but gold has remained relatively dominant because of universal recognition of its particular properties in this respect.
Bitcoin (or Safecoin etc) are different in this crucial respect that they are “extendable through forking”. Sure, the supply of each coin can be limited, but it is easy to create alternative coins with identical properties (ie a fork), which puts them in a different class to gold. At least that’s how I understand what @Tarak is saying.
Thanks again @Tarak for taking the time to explain and clarify at such length.
I think your analysis is more interesting now I understand your intention is to provide models for relative rather than absolute valuations, and providing the illustrations for comparisons is also very helpful. I’m really not sure how reliable they can be but it is a new area for me and I’m glad you took the trouble to present this.
Also for your thoughts on governance and funding the network - I don’t know if you are aware of the proposals for funding core development, applications and possibly also content on SAFEnetwork as discussed so far, but they are very relevant to that discussion.
I’m still of my original opinion (having read @Tarak’s point carefully in the first place ) that gold is no better a store of value than Bitcoin. The limitation on supply of both is dependent on how costly it is to mine, however Bitcoin has a hard cap, whereas gold doesn’t; there is still more of it in the ground.[quote=“happybeing, post:30, topic:12979”]
Nobody has found a way to significantly affect this despite constant searches for supply
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I think it is a case of not finding any cost-effective method of extraction, rather than there not being any available supply.[quote=“happybeing, post:30, topic:12979”]
centuries of alchemy
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Yes, that’s really surprising that magic hasn’t worked. I’m currently hard at work trying to transmute a doge coin into a Bitcoin…exactly the same results…
Still not seeing any distinguishing features here [quote=“happybeing, post:30, topic:12979”]
or as he says, discovering rival materials (metals or otherwise)
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This only establishes that other metals are not valued as highly as a store of wealth as Gold.currently. Other cryptocurrencies aren’t seen as good a store of wealth as Bitcoin currently - both situations could change. [quote=“happybeing, post:30, topic:12979”]
but gold has remained relatively dominant because of universal recognition of its particular properties in this respect.
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Not sure which properties you have identified so far that distinguish it from Bitcoin, other than historical use?
And it’s even easier to create a crypto coin as an alternative to gold with seemingly identical if not better properties - ie Bitcoin.
The gold is mainly held by the banks (and Indian housewives) and the price of it is set by and manipulated by the banks themselves, rather than market forces.
I know which I’d prefer as a store of value - the one with the better properties. Bitcoin could well replace gold and if another crypto comes along to replace Bitcoin, then that’s fine - it doesn’t negate the properties of Bitcoin as a store of value today.
This is all beside the fact that gold is cumbersome and not easily/safely stored - it can and has been historically confiscated too… Humanity is not going to hold gold as the best store of value forever, clearly only until something better comes along…and it just has.
Just to clarify a few things about gold.
First of all gold can’t be substituted, it has unique physical and chemical properties that are sought after industrially, both in electronic and medicine. This industrial usage only covers about 10% of its worldwide demand. The remaining 90% is divided between the jewelery industry and speculators in banks and ETFs.
If we are talking about the physical and chemical properties of gold, there isn’t any substitute in the periodic table. Period.
(The only potential threat to the shift in the demand curve would be on some industrial applications in the new field of metamaterials, if they create a material that improves certain applications of gold.
For example, in the electronics industry gold is used in its circuitry and it may be replaced in the future if room temperature superconductors are finally developed or if we switch to the new paradigm of photonic processing)
Still, even if a new super metamaterial can replicate and improve all the physical and chemical properties of gold in industrial applications at a cheaper price, it would only lose the 10% of the demand of gold.
The 90% will still be purchasing actual gold just because it is pretty shiny and untarnishable.
So what about messing with the actual supply of gold?
Regarding to alchemy, it is not magic. Transmutation happens every day in nuclear plants.
Also, transmutation of gold was experimentally tested in 1980 in a particle accelerator, from bismuth to gold.
The problem of course is that it isn’t cost effective, so there won’t be any kind of commercial production any time soon.
A more realistic threat to gold’s value as mentioned by other users above is asteroid mining. The resources in asteroids are in an almost pure state, and one single small asteroid can have more resources than the total supply available on Earth.
A prime example is the asteroid 433 Eros which is known to contain more gold than all the gold extracted in the history of humanity.
Asteroid mining is not science fiction anymore, it is being developed by two companies, Deep Space Industries and Planetary Resources.
There is no asset in the world that can guarantee that the supply curve won’t shift ever.
This risk will never exist in cryptocurrencies with hard caps in supplies in its algorithm.
As for not being able to create more gold, just look at the paper market. There is a hell of a lot more paper than real gold around, so supply has been magically increased by many factors. And that supply is used to hold the price down, so as far as a store of value goes, it is not protected by finite supply at all.
This is a bit misleading - alchemy does not happen every day in Nuclear plants. Alchemy specifically relates to transmuting base metals into gold - nothing else. What happens in Nuclear reactors is Nuclear fission. The only way to produce gold would be to remove protons from a more complex metal such as Mercury or Bismuth as you say -not add to some base metal (common metals not regarded as precious), which Alchemy specifically relates to.
I stand by my assertion that Alchemy is nothing more than Magic…
I agree with this and with the other things you mentioned above (not quoted) about the unique properties and body of trust that gold possesses, because of its unique properties and long history.
This risk will never exist in cryptocurrencies with hard caps in supplies in its algorithm.
This is where I understand @Tarak to be suggesting a difference, and I agree with him.
Obviously we can agree that bitcoin and cryptocurrencies in general lack the history of gold, and that they have very different properties. But I believe that the main point is that bitcoin can be duplicated - another cryptocurrency with identical properties can be created at any time.
One way is a fork, we’re discussing a potential bitcoin fork right now on the forum. Ever heard of a gold fork? The result of a bitcoin (or Safecoin) fork is always hard to determine, but when it happens it is undeniable that it affects the original coin, and this is different from gold.
Another way for this kind of impact to occur is for a new altcoin or cryptocurrency to be created which has similar but superior qualities (cf. Safecoin). In such event other cryptocurrencies will be affected in value, potentially in irrecoverable ways. With cryptocurrencies I think there is an undeniable systemic risk that any particular coin can become substantially less popular, less valuable and even obsolete and of negligible value.
That is of course true for any asset class, but the difference is that gold has a history as long as man’s own, and that this resulted in a universally high degree of trust in its long term durability as a store of value. While it is pretty obvious to me that bitcoin (or any cryptocurrency) could be knocked out by a superior rival cryptocurrency. Isn’t that precisely what we think might happen when Safecoin is available on a successful SAFEnetwork?
Yes, but surely you can see the possibility of bitcoin being the superior rival to gold and knocking it off its spot too? An argument based on history does little take into account the current context and difference in utility between btc and gold. We are living in a fast changing world. Cryptos are not at war with each other for a limited market, most are trying to do different things and they are at war with the status quo and current systems.
This would not result in two identical coins or two identical value propositions. A fork would be the birth of a new coin, and that could represent a threat to the current chain, but any holder would own equal amounts of both ofc, so I don’t see any risk there. ETC proved they can even survive without diluting the first value proposition if they offer a slightly different one (a history of immutability and commitment to it apparently has some value).
Gold’s long history is no defence of its future. It is hard and expensive to store and send, it is becoming less and less desirable or integrated into social consciousness as valuable.. If you watch that link I think you’ll agree we live in a very different world to 100 years ago where any passer by would have bitten your hand off for a gold coin. Check out how many videos there are like that on the pootube. Kids today don’t care about gold.
I do not see the digital generation choosing a bit of useless shiny metal over convenience and utility. And I say that as someone who owns more than his fair share of physical metals simply because the older generations will continue to value them disproportionately. We have more than enough gold above ground for 5000 years of industrial use at current rates. Gold should really be worth a few bucks an ounce in world where better stores of value exist.
8 years of BTC says that the forking issue doesn’t stop it being a store of value, the market capitalisationj growth of the combined crypto economy - from $5bn in 2015 to $27bn today says the trend is toward convenience with ever increasing trust of crypto.
And they did fork gold, into paper. They magically created hundreds of times more than has been mined throughout human history and declared them to be pegged to the same value and exchangeable/interchangeable (minus spread). Although ofc they are not really exchangeable since there is only 1 real oz of gold for every 300 paper ounces.
The problem with the above line of reasoning is that it assumes any replacement for gold as a store of value has to be another precious metal with the same physical properties. Clearly it doesn’t, it could be Bitcoin itself.
Pointing out that gold can’t be forked doesn’t establish anything pertinent - any more so than stating you can’t make jewellery out of Bitcoin.
A gold fork would essentially describe money flowing out of gold into Bitcoin, in exactly the same way as a Bitcoin fork would lead to money flowing into the new coin - there is no difference. In both instances you still have the original store of value in existence, its just that the value is less. All the main properties that establish both gold and Bitcoin as stores of value are pretty much the same.
The argument above seems to revolve around asserting that something with physical properties (gold) is a better store of value than something without (data or Bitcoin). This is even though both derive their value mainly from scarcity and immutability - they are essentially the same, though gold has some advantages and disadvantages being physical stuff and Bitcoin likewise has advantages and disadvantages by not being physical stuff.
On balance, I’d put up with not being able to make jewellery or electrical components out of Bitcoin (only 10% of demand anyway) to gain all the multiple advantages.
I don’t disagree with the points being made, but I think they come from a limited perspective and being used to throw @Tarak’s baby out with the bathwater.
Example: yes, bitcoin (or one of several cryptocurrencies not yet in existance) could supplant gold, but to do so is rather incredible at this point in time because of gold’s history and universal acceptance.
BTW, paper gold is not a fork of gold. It is smoke and mirrors, as is the USD. When talking of gold as a universally accepted asset class, the meaning is gold, not a derivative of gold. ETFs et al have been around for a decade, not much longer than cryptocurrencies, with which they share some properties.
Anyway, I’ve explained why I take @Tarak’s point as valid and will leave it there.
For 1 oz of physical gold in the world there is 500oz of paper gold.
I suggest everyone reads “a new case for gold” by James Rickards to understand how the price of the yellow metal has been suppressed over the years. Amazon.com
Just to be clear, I am very pro gold vs fiat. I hold more in gold and silver than I do in the bank. I just hold more crypto than PMs or cash/credit combined and so far that looks to have been a pretty good move ;).
) post. I’ll just address the first few salient points as I see them in the opening paragraphs, then maybe comment further later on, just to make it a bit more digestible to the reader.
