From the point of view of functionality, cryptocurrency can be divided into two main types. We tell about the advantages and disadvantages of each of them.
Crypto-currencies interested in obtaining the status of an accumulation facility (for example, bitcoin), in the long run, should strive for maximum predictability. In the digital world, in order to achieve this result, we must first of all have resistance to censorship, limited emissions, security and self-sufficiency.
In turn utilitarian platforms, such as Ethereum and EOS, have practical value: they experiment with flexible programming, network management models and new consensus algorithms. Winners in their environment will be the most flexible and innovative projects. They will be able to gain considerable weight in a highly competitive platform race. At the same time, the flexibility and innovations necessary for the development of utilitarian platforms contradict the predictability and security of crypto-currencies used as a means of accumulation (SoV). Increasing the overall utility and diversity of functions runs counter to the properties necessary for storing and transferring value.
The valuation of digital assets of utilitarian platforms is different from traditional approaches to company valuation. In a new digital paradigm, networks are replaced by companies, and tokens replace money and financial flows. Along with the growth of the network, the cost of tokens should also increase. Turnover - the rate at which an asset changes owners - can suppress its value. In addition, the open nature of the digital space leads to serious and aggressive competition.
Platform Scenarios
If the network is popular, its value should be high. It's intuitive, but only to some extent. Take, for example, the network Ethereum. There are two possible scenarios:
On the basis of Ethereum a whole ecosystem was formed. Fragmentation and second-tier solutions have significantly increased bandwidth and reduced costs for end users. The network is cheap, fast and popular. The cost of transactions tends to zero. But along with a significant drop in commissions, the demand for the airs required for their payment decreases. As the capacity increases, the ether turnover grows, reducing its deficit. Thus, low commissions and high throughput are good for users, but not for investors.
Network road, unpopular and slow running. In this scenario, the interest of developers of decentralized applications (dApps) is reduced due to high costs and low speed. Accordingly, the interest of users also falls, demand for airs is reduced, and their cost is reduced.
For platform tokens, there is a price ceiling, and it is lower than most people think. A growing number of users will not be enough to compensate for declining commissions. John Pfeffer discusses this issue in the article Institutional Investor's Take on Cyptoassets. In a state of equilibrium, the fair market value of individual platform tokens and dApps will be billions of dollars. Others become obsolete due to high competition and duplication of functions.
The path to value growth: value storage, not network utility
The greatest potential for a high return on investment is not related to utilitarian tokens, but to the means of accumulation. As we move into the digital world, people will face the growing need to safely store their wealth. Kyl Samani's article Paths to Tens of Trillions provides several scenarios for converting crypto-currency into a means of accumulation. In it, Samani recognizes that much of the wealth will be digitized. He distinguishes three ways to the formation of cryptocurrency by the dominant repository of value:
Creation of a means of accumulation (SoV) with limited practical value. Such assets meet the criteria of self-sufficiency, resistance to censorship, deficits and security. For example, the value of gold is not an indicator of its usefulness, but a global standard for storing money. Example: bitcoin, ZCash, Monero and Decred.
Providing maximum benefit to application developers and end users. In this case, there will be some attachment to the base platform. If Ethereum is the dominant network, why not keep all the wealth on the air? Example: ether, EOS, Dash, Tezos, Dfinity and Cosmos.
Binding to assets to create a "stable coin". This path allows you to completely eliminate volatility, and, as a result, stimulate treatment. Example: Tether, Maker and Basecoin.
Classification of assets by Kail Samani serves as a basis for understanding the potential mechanism for converting cryptocurrency into a means of accumulation.
Stable coins have a great potential, but at the moment their capitalization is a relatively small percentage of the market, so we will go further on crypto-currency-accumulation funds and utilitarian tokens.
Utility Crypto-Currency
Grow or die. Technological Darwinism dictates the survival of only the best and the fittest. The creation of the most convenient and functional platform can lead to the emergence of an extensive and loyal base of followers. Since the range of applications of such a platform is very wide, users can store their savings in its native tokens. This would eliminate the need for an exchange between SoV crypto-currencies and these tokens. Thus, platform tokens with the highest overall utility can become the primary means of saving.
Utilitarian platforms should be developed rapidly to bring the highest profit in the market. However, as the platform grows, innovation becomes more complex. This is the "dilemma of innovators" - a digital analogue of biological gigantism. If an organism grows too large, it becomes slow, clumsy, and vulnerable to faster predators. In such circumstances, disappointed participants can fork out the network and create several similar, but more dynamic platforms. Some of the new platforms will fail, but the usefulness of their more successful brethren will be much higher. Being practical people, participants of the original platform will switch to competing projects. Since they now use a different platform, will they decide to transfer all of their wealth to its tokens?
Cryptocurrency as a means of accumulation
Unlike utilitarian currencies, digital gold is characterized by a relatively low overall utility and flexibility. It is slowly developing, but it has high self-sufficiency, resistance to censorship and security. Users can choose digital gold to store wealth, as it is familiar to them, safe and relatively predictable. This choice is rather determined by emotions than by logic, for the value of any gold depends solely on people's belief in it.
Some participants can create their own version of this digital gold with increased utility. Someone will try its new functionality, but the vast majority of users will keep their wealth in digital gold not because of its usefulness and flexibility, but because of its stability, independence and security. They will be reassured by the fact that wealth is stored in an anti-fragile asset. In this case, the slow pace of innovation is an attractive and key feature. Participants can be sure that the instrument in which their wealth is stored will not change suddenly.
Conclusions
The requirements for the means of accumulation contradict the nature of utilitarian currencies. In the digital world, the latter are changeable and often ephemeral. It is important that their speed of development will only grow. With the popularity of the platform, innovation will be more difficult to implement. Users will start switching to new, more convenient and functional platforms.
Rapid innovation and the introduction of new functions are critical to the widespread use of utilitarian platforms. In this case, protocols that increase flexibility will serve as a fundamental infrastructure for creating value. In turn, digital assets that act as a means of accumulation will have a high level of predictability, independence, resistance to external influences and security. The right choice of such an asset will bring a huge return in the next decade.