Thursday, November 30, 2017

The economic value of a cryptocoin

A cryptocurrency is a protocol. Like land, protocols are useful for building businesses. Also like land, but unlike conventional protocols (e.g. http), cryptocurrencies come with a finite and transferable supply which can be bought and sold.

Purchasing cryptocurrency is like purchasing land in, say, silicon valley, which may later be leased or sold to entrepreneurs who would like to build their businesses there. The ability of that land to facilitate the subsequent business activity it hosts, is the source of the property's underlying value.

Come to think of it, USD is also just a protocol, and the value of that USD also, like land, follows from the ability of that USD to facilitate the subsequent business activity which it hosts.

Thanks to Willy Woo for the analogy to real estate.

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