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This is a guest post article by Felix Xu, co-founder and CEO of ARPA and Bella Protocol. It has been edited for clarity about the main topic the intrinsic value of cryptocurrency from the writer’s point of view.
Cryptocurrency has come a long way since Satoshi released the Bitcoin whitepaper in 2009. While Bitcoin’s price has fluctuated wildly over the years, the underlying technology behind it has developed into one of the most capable, and efficient, currencies in the world today.
For years, cryptocurrency has been in the news over the last few years. People are looking to make money out of it by selling it and making a quick buck. And the market has been on a roller coaster. The price of Cryptocurrency keeps fluctuating. It’s been so volatile that it’s hard to tell how much it’ll go up or down. But it is also very important to understand that cryptomarkets are not going anywhere.
Cryptocurrency prices have been on a downward spiral for months, bringing the market to the lowest it has been in years, but that doesn’t mean that it is dead. In fact, as it stands, the market is still in the early stages of its lifecycle, and a new player has emerged. The value of cryptocurrency is a symbiotic relationship between demand and supply. As long as there is a growing demand for cryptocurrencies, the supply will be limited by miners, and that supply will be in turn limited by the demand. And as people find new uses for crypto, its’ price will increase again..
Over the past three years, my ARPA colleagues and I have had the opportunity to think deeply about the nature of blockchain technology and its applications. What do obscure concepts like decentralization, immutability, equity and transparency mean for human society?
Today we share our thoughts, formulated in eight concepts, with you in this article.
- 1 The intrinsic value of cryptocurrency – 8 concepts
- 1.1 The White Paper on Bitcoin
- 1.2 Controlling the code is the way to return to the laws of nature.
- 1.3 The boundary between virtual and real is gradually becoming blurred, and the value of real rights is being redefined.
- 1.4 Incomplete decentralisation will lead to absolute centralisation.
- 1.5 Mutual prosperity on the wealth and capital side.
- 1.6 A stunning transformation from a narrow view of cryptocurrencies to a broad definition of digital assets.
- 1.7 Infrastructure and application spirals, low linkage thresholds lead to continuous innovation.
- 1.8 To the masses! Long live the meme!
- 2 Looking to the future Fusion of humanism and machine rules
The intrinsic value of cryptocurrency – 8 concepts
People have different aspirations; the desire for wealth, camaraderie and fame is part of human nature. Anticipating the future helps people to be creative, but people are uncertain and unreliable.
Blockchain and smart contracts represent immutable rules that can replace fickle human decisions and transform an opaque game between people into a transparent, rules-based game. If the blockchain infrastructure could be fully decentralized, the implications for human organizational form would be revolutionary.
We present here the first draft Blockchain is the infrastructure for value creation in society. Trust is based on the fact that one person cannot change the whole system, which allows the use of consensus models. It is the decentralized nature of blockchain that makes social consensus possible. Bitcoin is a company without a CEO and has a market value of trillion dollars precisely because no human can determine its parameters. In some ways, bitcoin is similar to a religion where the physical body of the leader has been forgotten, but the words and sacred stories live on.
The White Paper on Bitcoin
Controlling the code is the way to return to the laws of nature.
There are shades of grey in human society because many things in human interaction are not just black and white. Similarly, human law is advisory, and there will be a price to pay if you violate it, but that doesn’t mean it’s impossible to violate it.
The rules in the blockchain world are coercive and adjust the practice from the subjective decision to do no harm to the objective impossibility of doing harm. At the same time, blockchain protocols must be designed to mimic the behavior of all parties. If transparent rules are followed, they should eventually compete sufficiently to reach a state of equilibrium. As in nature, participants will have different objectives to increase the biodiversity of the protocol and thus sustainability.
The boundary between virtual and real is gradually becoming blurred, and the value of real rights is being redefined.
The proliferation of computers and mobile phones has turned people into cyborgs and digitized much of the work. Human entertainment is increasingly shifting to the Internet, and the proportion of entertainment consumed digitally will continue to increase for the foreseeable future.
The paradox of valuing digital assets is that two entities cannot be identical at the atomic level, but two images can be identical at the bit level. Because it costs almost nothing to reproduce them, digital assets are difficult to value. The NFT blockchain guarantees the uniqueness and legitimacy of real digital rights. We believe that the concept of copyright will be weakened for digital products such as images, audio, video and games. Conversely, the value of real rights will increase with the proliferation of digital assets, which will eventually coalesce into a consensual meme.
Total value blocked in the FISC (source: Llama FISC)
Incomplete decentralisation will lead to absolute centralisation.
In the past year, DeFi’s total smart contract blockchain liquidity has grown from $670 million in early 2020 to $120 billion in June 2021 – a growth rate unmatched by any other industry.
Behind this impressive growth are the closed business services provided by cryptocurrencies and smart contracts. In the case of DeFi, secured loans, deposits, liquidation of collateral and repayment of cryptocurrencies are done through smart contracts without centralized communication.
Compared to DeFi, assets on the chain and STOs (security token offerings) on the asset side are relatively close to the existing financial system and evolve more slowly. In the long run, the next tipping point will be where spending, asset flow and cash flow are generated. We believe that the only thing that can be associated with cryptocurrencies is its own digital product.
Mutual prosperity on the wealth and capital side.
The current market that DeFi can serve is over $2 trillion. In mid-2020, we predicted that Stablecoin’s growth rate would significantly exceed the overall growth rate of cryptocurrencies, even surpassing BTC by a multiple. The data proved us right. In the case of USDT, the issuance of USDT stablecoins increased tenfold from early 2020 to June 2021, from $6 billion to $58 billion.
Most important stable currencies by market capitalisation (Source: Coingecko)
Stablecoins can be seen as a link between cryptocurrencies and the real world. In DeFi and Trading, stablecoins are on the equity side, while Bitcoin, Ether and others are on the asset side. As the blockchain ecosystem blossoms, the long-term returns of DeFi will be much higher than traditional finance, and the value of the funds that can be transported will increase.
If Stablecoin has a long-term market value of $5 trillion and an annual return of 4%, then the value generated by trading activity in Stablecoin would be $200 billion per year. This value is being driven by more frequent institutional trading, greater use of DeFi, the emergence of new asset classes and cryptocurrencies.
Daily stablecoin transfer volume (Source: Dune Analytics)
A stunning transformation from a narrow view of cryptocurrencies to a broad definition of digital assets.
There is no denying that most modern cryptocurrencies, such as Bitcoin and Ether, combine the functions of medium of exchange, stock and store of value. The rise of Stabelcoins has weakened the role of cryptocurrencies as a medium of exchange, but strengthened their financial characteristics.
Digital assets include all valuable objects created in the digital world, whether they are infrastructure such as data, storage and computing power, distributable media such as images and videos, or usable assets such as game elements and virtual goods. Digital assets have no financial attributes, but are assets that can be authenticated and circulated using the blockchain.
The scenarios of issuance, circulation, use and consumption of digital assets should form a closed loop using blockchain and smart contracts. Current attempts to use NFTs in integrated circuits, digital art and game objects are small steps. As the blockchain infrastructure improves, more and more low trust scenarios are being transferred to the blockchain. The variety and scope of Dapps will increase, creating more and more cash flow generating use cases.
The development of the Internet has taken more than 20 years, from the first ARPANET to the provision of dial-up and e-mail services. Another ten years passed between the appearance of the first browser and the creation of Facebook. The current infrastructure of the blockchain world, bitcoin, came out 12 years ago. In the six years since Ethereum’s launch, blockchain has evolved from its initial transition to tokenization to the explosion of DeFi. It has done what took the traditional Internet industry 20 years to do. There are reasons to believe that blockchain, a rules-based infrastructure, will be used in the future for all scenarios of strong trust, such as. B. assets, and some low confidence scenarios, such as. B. Data, will apply.
Internet (50 years)
- 1969 – ARPANET
- 1982 – TCP/IP (infrastructure)
- 1994 – Web browser (deadly platform)
- 1995 – Amazon, Yahoo
- 1998 – Google
- 2004 – Facebook
Mobile (20 years)
- 2003 – 3G mobile network (infrastructure)
- 2007 – The iPhone (the killer platform)
- 2008 – App Store (Killer App)
- 2012 – 4G mobile network
Crypto (12 years)
- 2009 – Introduction of bitcoin
- 2013 – CEXs, Portfolio
- 2015 – Introduction of Ethereum
- 2018 – Stable parts
- 2020 – DeFi
- 2021 – DeFi, NFTs and CBDCs
To the masses! Long live the meme!
According to us, there are two types of users of cryptocurrency: The owner and user of the product. Cryptocurrency is an attention economy, and owning a coin is a way of identifying with its philosophy and serves to confirm one’s membership in the community. Therefore, when cryptocurrency projects work, viral marketing that fits the tone of the brand and product growth should go hand in hand.
Dogecoin, for example, which was originally intended as a bitcoin knockoff, would not become a cultural icon for young people after several years of inactivity and the departure of its founders from the market. While Bitcoin Core and the Ether Foundation are down-to-earth, they are far removed from the speculative community and give the impression of strong self-interest, which makes them less cool for young people. The younger generation of new cryptocurrency users are naturally distant from expensive bitcoin. On the other hand, Dogecoin has a low price and a cute avatar to boot.
Just as Warren Buffett doesn’t understand bitcoin, many blockchain experts who focus on application scenarios don’t understand dogecoin.
Memes can have a big impact and attract new users to cryptocurrencies. But given the rapid evolution of user preferences, how many memes will survive in the long run?
I don’t like Doge. He’s a meme. But I didn’t like the lolcats either. Lolcats got attention and got early adopters used to the internet, and what Lolcats did for the internet, Doge will likely do for crypto-currencies.
In this regard, Doge is probably more important than most
– Andre Cronje (@AndreCronjeTech) May 8, 2021
Looking to the future Fusion of humanism and machine rules
The blockchain world differs from the human world in many ways; it is a paranoid, rule-driven trust machine. In theory, blockchain should be the foundation for all inherently digital assets, including financial activities, virtual assets, and even social and broader data and information flows.
Sure, the current power of blockchain can barely support limited applications like DeFi, but the applications and infrastructure are growing.
The development of the Internet over the past fifty years has changed every aspect of human life. On the other hand, blockchain will become a portal for people to move from managing people to managing code. Several decades ago, with the advent of the computer, carbon-based life forms first encountered the silicon-based world. The world, its rules and religions were completely new. We believe that the curtain is gradually rising on a society where the philosophy of humanism is highly developed and the rules are clear.
Article by Felix Su
Felix Xu, co-founder and CEO of ARPA and Bella Protocol. Felix graduated from New York University with majors in finance and information systems. Felix has worked on venture capital investments in Fintech, Big Data and Artificial Intelligence startups for the past 6 years. Felix most recently led blockchain research and early-stage investments at Fosun Group, one of China’s largest conglomerates. Felix has invested in Suishou Technology, Datebao Insurance, Huike Group in China and MakeMyTrip (NYSE: MMYT) in India.
Bitcoin, the world’s first and most popular cryptocurrency, has reached a new all-time high of $3,400 in a single day, but aside from the insane run-up in values, the underlying technology is far from dead. After all, Bitcoin is still the most popular way to pay for goods and services online. It’s also worth noting that some investors favor Bitcoin for the store of value qualities of the cryptocurrency.. Read more about future of cryptocurrency 2021 and let us know what you think.
Read more about bitcoin price and let us know what you think.
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