In our last article, we discussed the aspect to tokenization that most miss. This is something that is going to be very important once networks start to become abundant.
The push into the world of digitization is ongoing. We see more of our daily lives shift into this realm. Essentially, whatever can be digitized will be. That means society will be radically different a decade from now as compared to today.
One of the things many discuss is how real world assets will be on blockchain. This makes sense since it is part of the digital transformation. After all, we saw stores go from a physical building to websites in many instances.
Another concept that is often mentioned is that of the Network-State. It is an idea that has plausibility considering what already occurred with digital platforms. When we look at the size of the Facebook family, we see how this rivals many nations.
Of course, this is a closed network that is owned and benefits only a few. The framework, however, does make sense as a glimpse into the future.
Here is where a network like Hive enters. So how is this all tied together?
Who Benefits From An Economy's Growth?
This was the central premise of the article linked above. Who benefits, financially, from the growth of an economy? The conclusion was that nobody directly benefits in the sense we have a way to capture that value. To find the answer we have to look to business owners, corporations, or workers. There is nothing that captures what is happening in the global or a national economy.
It is something that changes completely with networks. There is a way to capture the economic activity through tokenization. If networks are going to mirror nations to some degree, then we are embarking upon a way for its "citizens" to benefit. When the network's economic output expands by 15%, there is a mechanism to collect that value.
This is the novelty of the Network-State. It is also something that is seriously overlooked in cryptocurrency.
Hive to $25?
Here is a very simple example that will reflect what we are discussing.
Look at the blockchain Hive, we see a network that have the ability to store text data. Hence, we are instantly dealing with a decentralized database.
The blockchain world often uses the terms Layer 1 and 2 to distinguish between something that is on the blockchain as compared to what is built on top. If the base layer is akin to a nation, then the second layer is the industries, businesses, and sectors that feed the economy.
Another overlooked fact is the impossibility of separation between the two. Any economic activity produced at the second layer is reflected, to some degree, within the network. It is like saying that the Tokyo economy does not feed into Japan's. They are impossible to separate.
With Hive, we are look at just over 400 million coins. That means to get to a $25 level, we are talking about $10 billion.
How big does the Hive economy have to be for its value to be worth $10 billion?
Here is where things get a little squirrely since metrics aren't perfect. How do we unfold this?
We could start by using a simple GDP comparison. By going down that road, we see the network would require the economic productivity of countries like Kosovo, Mauritania, or Equatorial Guinea. These nations come in around the $10 billion mark in GDP based upon Wikipedia.
The reality is that we are likely dealing with a much lower number. If we use a net worth approach, by looking at the United States, we see a much different story.
Going back to the same site, we are looking at U.S GDP of about $27 trillion. The estimated asset - liabilities comes in at $123 billion. By this method, we can see an approximate 4:1 ratio.
Under this scenario, the economic output is now $2.5 billion for a worth of $10 billion.
That would put HIVE, with around 400 million coins, at $25.
Network Economies
We do not hear a lot of discussion about this concept within the blockchain or cryptocurrency worlds. The focus is mostly on coin or token pricing and when the bull market will start. To me, this shows a lack of understanding of what is truly taking place.
The most successful coins in the future are not going to be those with hype or popularity. Instead, they will be reflective of the networks that deliver the most value. This means economic productivity in all its forms.
To achieve this end, developers, entrepreneurs, and business minded people are required. They will have to build the platforms that generate this output. This is the next generation Internet.
One way to look at this is to think of all the industries that depend, at least in part, on the Internet, We have the companies that are mostly digital such as social media or Amazon. There are also companies that have a large part of their activity online such as Tesla and Uber. We cannot overlook the financial institutions who have millions (billions?) of transactions per day done, all online.
Communications. Information. Streaming services.
All of these rely heavily on the Internet. The list will keep growing as more of healthcare, energy, and manufacturing end up digitized.
This is a much different process than simply looking at market action believing that is going to reveal long term value. In fact, we know markets are misleading while also being awful at valuing things.
The tokenized state means having a network with a thriving economy. Here is the basis of trillions in value created over the next 10-15 years. With a network like Hive, the value capture at the base layer is contingent upon the economic output generated on layer 2.
What this means is the "GDP" of the network is now captured and tokenized. Individuals who are holding it can financially benefit from the overall economic growth. Some might want to compare these networks to businesses yet that isn't an accurate approach.
When dealing with a permissionless, public blockchain, the business concept evaporates since we this is akin to digital land. Anyone is free to build a business. This means the business are on top of the "land", which only increases the value.
It is also why the battle between layer 1 and 2 makes no sense. Anyone who grasps how things are unfolding quickly realizes the value generated by the second layer has to translate into the first.
Attacking layer 2 is akin to the Government of Japan going after Tokyo believing its economic productivity is a thread to the nation.
Obviously this is absurd but it is how many think within the world of blockchain.
That said, the opportunity is huge. We are going to see networks worth trillions of dollars. It is likely some will surpass the value of even the largest nations as the digital realm keeps growing.
A $10 billion network will not be a major player in the future. Again, relative to others, it is Kosovo.