Why Cryptocurrencies Have Value (Part 2)

Why Cryptocurrencies Have Value (Part 2)

(Continued from Part 1: https://steemit.com/crypto/@investingpennies/why-cryptocurrencies-have-value-part-1)

(This was a letter written to a friend, so take it with that context in mind.)

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... Understand that most altcoins, which refers to all cryptocurrencies that are not Bitcoin, tend to have functional specialty use in their own ecosystems. The following refers only to STEEM, just a single instance of an altcoin. And recall that all cryptocurrencies are paired to Bitcoin when it comes to trading.

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STEEM (https://coinmarketcap.com/currencies/steem/)

STEEM is currently the #30 ranked crypto (out of almost 2000) based on mkt cap, in an environment where 44% of the entire valuation is dominated by Bitcoin. It just celebrated its 2-year anniversary this week, where Bitcoin emerged almost a decade ago.

STEEM is a cryptocurrency that pairs social media to a blockchain. Article:
https://www.bloomberg.com/amp/news/articles/2018-02-27/websites-using-blockchain-to-pay-users-aim-to-disrupt-facebook

STEEM's functional use drives the incentivization structure behind any platform based on STEEM. The design advantages of STEEM is that it uses a 0-fee transaction system that can handle a very large amount of transactions in a very quick environment. Bitcoin was designed to be labor-intensive and slow to be thorough in achieving consensus between the verifying nodes (bitcoin miners). Steem was designed to handle 10,000’s of transactions per second while still achieving consensus in order to scale more effectively.

Unlike Bitcoin's creation process, which requires being a miner (to verify transactions using intense computation), STEEM is generated at a set inflation rate (that decreases over the years) and rewarded according to community voting power. Like all crypto, it's value is determined based on it's relative value to Bitcoin and to what someone is willing to pay in fiat currencies like the Korean Won or USD. Yet, the utility STEEM provides is based on the platforms that are based upon it. A whole new Internet is being made, but it is very much in it's infancy.

Here is some context. The following platforms, also known as dapps (decentralized applications) are all built on the STEEM blockchain. While Steemit is 2 yrs old, most are only a few months old. Mind you that all of these dapps run on a single blockchain (read supported by one cryptocurrency), and that this is only a sample of what's already in existence:

https://steemit.com (blogs)
https://d.tube (video)
https://dlive.io (live streaming)
https://dsound.audio (music)
https://utopian.io (open source projects)
https://steepshot.io (instagram wannabe)
https://zappl.com (Twitter wannabe)

This should give a sense of what is coming as these dapps merely mimic and improve upon the current use cases of the Internet today. They take proven business models, add a dash of privacy, add compensation-based incentives paid out and sustained without the need for advertisement revenue (but not exclusive of it), and build it upon a censorless decentralized blockchain that no corrupt government can shut down outside from turning off the Internet itself (because no single entity is running this network).

So why use any of the platforms above? And why acquire more STEEM? Internal incentivization. Those who own more STEEM have more influence within the platforms – part of Steem’s functional utility. While you don't need to buy your own STEEM to get started, those who have it have a greater ability to reward themselves and others via their voting power. Additionally, at least in Steemit, stockpiled STEEM that is locked into the system (and is only able to be withdrawn over a 13-week period) generates automatic STEEM interest payments from the reward pool (think dividends) along with that increased voting influence. This assists in regulating the amount of supply in trading circulation and also increases the demand for it.

Although it's not a robot perse, blockchains feel practically autonomous, as given the right conditions even someone like you and me can act as a node that begins hosting the ledger that maintains it. For STEEM, those who run the blockchain are elected by popular vote and are handsomely compensated via the generated reward pool (again the product of set inflation rates). The blockchain ledger is also entirely transparent and public facing. Everyone can see every action ever taken. Every single action ever taken on STEEM can be viewed here for example: https://steemdb.com/ Everyone can see everyone’s wallet value, every transaction, every deletion, etc etc throughout all of the blockchain’s existence. Nothing is hidden on the chain itself that data analytics can’t find. How an interface platform like Steemit views that blockchain however, is a different story…. This is how posts can be “deleted” on the platform but in reality they’re only hidden on the platform and forever in exist on the blockchain.

Brave new world.

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But again, going back to the crypto market at large and Bitcoin, realize that it's valuation is largely attributed to the vastly growing amount of use cases. NOT ONLY in its own specific blockchain use, but in the functionality of all the other use cases – they’re all tradable against each other. The value one speculates on is in its growing value that crypto markets have to society at large and it's not limited to money-replacement. In the case of STEEM, it's use case is in a centralized social media replacement that is both “private” and censorless (#deletefacebook, anyone?).

But there are a lot of new use cases now under development. Anything currently on the Internet can be reimagined in crypto. Turning supply chain management into something tradable and investable is also going to be big as the internet of things arrives. Imagine trading fractional ownership of Uber’s cars for a slice of the income, it’s possible now should the company pursue it…. And that’s not really possible via say the stock market. The stock market itself can be disrupted… For example, Overstock.com is trying to exit its e-commerce business to create a trading settlement platform that eliminates t+3 transactions into t+0 transactions (thereby eliminating 3 days of inefficient red tape in stock settlements).

Right now, the entire crypto market is correcting from a speculative bubble just like the internet stocks had at the turn of the century, but the underlying foundation of real innovation in this space is just beginning. Where it goes is anyone's guess.

I view STEEM as a means of extra income. Been around long enough to extract out my original principal while still being effective in this environment, so the risk is mitigated at this point. Personally, crypto seems more like a hedge to the risk of having income and stored value only in fiat currencies, which are at risk of inflating out of control due to rampant disregard of supply creation. We all feel that oversupply effect due to consistent inflation, and crypto like gold/property/stocks all have has a sense of that relative stickiness attributed to real assets due their built in supply constraints. Some cryptos even perform deflationary mechanisms akin to stock buybacks by burning off their own supply count under certain conditions.

Most of mainstream media hasn't touched upon any of this apart from the speculative nature of Bitcoin... But the amount of use cases out there still waiting to be meaningfully touched by blockchain is truly staggering – many will be supported and financed by cryptocurrencies. This is the new Internet underway, but unlike the internet of information it's going to be the internet of value, and it goes hand-in-hand with past creation and the internet of things which is simultaneously underway in being created. It will feel like a new kind of stock market over time, but one that is globally traded upon and able to target assets and concepts rather than represent corporations.