• by William Mougayar
    Venture advisor, 4x entrepreneur, marketer & strategist. I live in Toronto, curate a lot, blog a bit, and help startups.

Value Creation and Movement with the Blockchain: The Easy, Difficult and Mysterious

value imageI have been obsessed with understanding how new value will be created on the blockchain and via cryptocurrency-related businesses.

If you look at the “money” side of Bitcoin, the method for revenue generation is not so rocket science. It pretty much follows how financial institutions have been making their money at the lowest hanging options of their revenue models: via transaction fees and financial derivative products. Bitcoin exchanges are leading the way by charging a transaction fee when we transfer money from Bitcoin to fiat or vice versa. That’s the “easy” part.

Now, I want to make a distinction and comparisons between money, value, rights, payments and revenues, within the context of cryptocurrency.

What is the purpose of money? The purpose of money is to enable paying for something that has a value attached to it. Typically, you pay in order to obtain the “rights” for owning that something, or for using it.

That “payment” part is going to be challenged by cryptocurrency constructs, because “paying” and “receiving” are now being bundled together.

Cryptocurrency, because of its programmability aspects, embodies digital information that can enable stuff. When you “pay” via cryptocurrency, that transaction could also include additional legal characteristics attached to it, such as rights (e.g. property, information, custody, access, voting), trust, or approval levels. And when you “give or receive a product” (the value part), that automatically triggers a withdrawal or receipt of cryptocurrency.

So, arguably, value is more important than money. Yes, money is value, but not all value is money, and that is especially amplified by the advent of the blockchain. Money, in the traditional sense was an enabler of value exchange, but the blockchain is also about value transfer, and it is about transferring something different than money. It is a new form of transactions where the “value is represented by what it unlocks at the end of the transaction, not by an intrinsic fiat monetary value that gets deposited for later re-usage.”

For example, I could earn cryptocurrency by sharing my automobile driving patterns data with an App (such as La’Zooz for transportation), and then take a ride the next day with another La’Zooz driver, and that will automatically deduct some tokens from my balance. In this case, no fiat money was exchanged, and no payment was exchanged. Instead, cryptocurrency was earned passively (by just driving), information rights were given to the driver (that I was a legitimate passenger), other rights were confirmed to me (that the driver was trustworthy), a service was provided (to be driven somewhere), and value was exchanged (cryptocurrency) in combined forms of physical and virtual settings. This example represents the “difficult” category in blockchain related applications. Hopefully, we will see more of them, via decentralized applications and decentralized autonomous organizations that are creating and bundling new forms of services with cryptocurrency by using the decentralized trust components of the blockchain.

Cryptocurrency provides an equivalent way to paying for things, but without actually paying for them with traditional currency. This also puts into question the concept of “revenues”, because accounting for revenues will get muddled with receiving a “right” instead of seeing actual fiat revenues.

This will create new movement options for value creation, beyond what traditional currencies enable.

Therefore, what the blockchain enables is a new “flow of value”, a concept related to economics Nobel laureate Michael Spence’s work on how digital technologies transform global value chains via the dynamics of information flows.

The blockchain is a new digital value leveler as it impacts and shifts value within the cryptospace and into our physical spaces. The blockchain moves the power of transactions closer to the individuals, and it merges (crypto) capital and labor with mobile, location-agnostic marketplace environments.

I believe that we are in the early stages of understanding the movement, distribution and creation of “value” outside of the traditional norms of currency and property as the only vehicles for value transfer and appreciation.

That will be the final and “mysterious” part of figuring out new forms of value creation in the cryptocurrency-driven economy.

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