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The Economy Of Cryptocurrency Networks

There’s been much talk around cryptocurrency networks recently, especially with the expected launch of traditional media platform cryptocurrencies such as the Telegram Coin, JPM Coin, or the potential Facecoin (or Facebook Coin, if you want to take the fun out of it).

There is, of course, another side to the coin.

With the launch of more and more cryptocurrencies, how can users value each token? Should we use traditional financial metrics, such as the ones we use to evaluate stocks, based on cash flows, revenues, or equity?

Or should the analytics models be based on different attributes, such as the value of the network, utility metrics, and transaction speed?

Let’s begin our analysis by looking into how the current internet protocol is implemented and how it interacts with multiple infrastructures.

The Present Network Model

There is no shame in admitting the model we currently have for most internet-based platforms doesn’t do much good for the end user.

It does what it’s supposed to do, but there’s a whole lot of negative features that come with it. For instance, there’s always the privacy problem as data is stored in centralised databases and servers, which have single points of failure. Then there’s the fact our data has been known to be used wrongfully by a great deal of counter-parties, such as Facebook and Google.

We could fight the current system with the rule of man, where we ask other centralised institutions to vouch for how these companies treat our data. That’s precisely the goal of the EU’s Articles 11 and 13 and similar policies, where regulators ask companies to follow certain procedures in order to secure user data. However, there are few mechanisms to enforce or check whether companies have been following through.

In addition, the current network model is created on an infrastructure that is difficult to scale. Because there is little interoperability between systems, there is also little incentive for collaboration.

Internet-based companies still rely too much on user-generated data and content for their revenue without appropriately compensating users for their efforts. How can a company generate revenue if users are allowed to choose which provider they want their data to be shared with?

It doesn’t seem that such a model works in the real world because incentives are misaligned.

Instead of pricing bad behaviour — much like we do with environmental issues, where companies have a pollution cap or pay fees for polluting — why not create an open and transparent incentives system where rewards are directly shared with data owners, content creators, and any user who positively participates in the network?

The Upcoming Network Model

I argue that we have failed to properly implement a digital sharing economy because we have failed at the infrastructure level. Unfortunately, during the early stages of the internet, there was no simple way to share value online, at least not without going through third parties like banks and payment providers.

Users got used to going through multiple third parties that work as guardians of all data. These companies are responsible for communicating and authorising value sharing among users – which seems a bit weird given the fact we do not require permission to send an email.

What I mean is: why the hell should we ask permission to share value?

The big deal with the appearance of Bitcoin, blockchain, and smart contract technology is that they solve key issues.

Remember what blockchain technology solves?

  • The trust problem

Remember why it solves the trust problem?

  • Because it is a trustless system.

Remember how the blockchain achieves this trustless nature?

  • By adding incentives, reputation, and game theory mechanics into a public ledger network.

The idea behind this distributed, P2P technology is to allow users to hold, transact, and share value privately in a public environment, easily accessible by everyone.

This way, there is little incentive for companies to hold on to all the user-generated value.

How To Economically Value Crypto Networks

I won’t go into much detail on each factor that influences the value of a crypto network (which is usually referred to as market cap) simply because there are many different metrics that apply depending on your goals.

While to some the only cryptocurrency that matters is Bitcoin, to others there is a purpose and meaning in other cryptocurrencies, as they see value sharing as an application that can be independently configured.

This means companies now have much better tools to implement value sharing into their networks.

The economic value of a token, which can be linked to its market capitalisation, revenue streams, transaction speed, or income expectations, may also be connected to its utility purposes.

When crypto platforms understand the power of sharing value instead of taking value, much like Bitcoin or Ethereum do for securing both networks, we can aim to completely shift how the value creation process takes place.

Price may even start being influenced by other metrics intrinsically linked to features like voting, revenue sharing, and discounts.

What matters in the end is that only when we implement appropriate value sharing mechanics based on users’ contributions, curation, and general participation rather than financial participation may we see the rise of Web 4.0 and Recruitment 4.0.

Can you imagine what life will be like when your digital presence, which is increasingly growing whether you like it or not, becomes a form of passive income?

That is the true power of crypto networks: to enable value sharing between a community of people who are working together to achieve a common goal.

Whatever that goal may be, by decentralising economic value among all network users, you will improve the conditions of a greater number of participants, which is the ultimate purpose of any blockchain-based technology.

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