Value Creation and Movement with the Blockchain: The Easy, Difficult and Mysterious
I 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.
i like your notion of getting paid to share the information that leads to a transaction opportunity. have you seen anyone building such a service (doesn’t need to be in ridesharing btw)?
I’m glad that you honed in on that key nugget in the post. That is an area I’ve been thinking about.
The thing is you need to have a meaningful data exchange which is tightly related to the transaction service. I’m looking for more examples, but keep reverting to naming La’Zooz on more than one occasion.
Some weaker examples include: a) sharing your computing cycles across the network, or b) sharing your unused storage. Storj, Maidsafe and OpenGarden are dabbling around this, but I’m not sure if the bi-directional token earning is so tightly coupled from an “earning” and “real indispensable value” point of view.
GetGems lets you earn Gems by referring users, which you can re-use in their network, but it’s marketing oriented.
I’d like to see more examples where the shared data becomes an integral part of making the transaction a better one (La’Zooz fits that perfectly).
Dumbed down, it’s like a torrent concept but where you earn something by sharing something, and can re-spend it on something else that’s related.
Imagine if more of this existed, then there will be new value creation that is organic to the crypto-economy. That’s one of my thesis assumptions for how Bitcoin will evolve outside of what we see today. (I need to write another post on that)
Does this relies on RL courts honoring what blockchain says? :-/
I think RL courts will need to catch-up to this, eventually.
Analogy for today is what the website/online says. If that’s valid in court, then one day blockchain transactions/values will be, if needed.
Have a donut on me, @changetip:disqus
A bitcoin tip worth a donut (1,364 bits/$0.35) from @disqus_g2gMDd3lxe:disqus has been collected by @wmoug:disqus via ChangeTip.
Consider 21 Inc. in this category if early talk from one of their founders in bitcoin forums some time ago, is to be believed. They’re certainly getting a premium valuation for an untested model so I suspect they’ve figured out some interesting arbitrage opportunity.
When are they supposed to come out?
Not sure, but here’s the announcement of their latest mega-round ($116m!!!!): http://blogs.wsj.com/digits/2015/03/10/secretive-bitcoin-startup-21-reveals-record-funds-hints-at-mass-consumer-play/. @fredwilson may be able to shed some light about these folks, as I know one of his LPs was investor in this round.
Always glad when you dig into this stuff William, there’s so much b.s. around bitcoin that’s hard to parse. One thing that re-occurred to me while reading is that the value of a given (non-traditional currency) exchange is subject to how both parties interpret and set an agreement. I think that’s profoundly unsettling to people and co’s who have a view of the world as a place where centralized, controllable things win out. But I like the idea of not trying to control an ecosystem (which by definition, is impossible and leads to bad things over time).
An example of a series of interactions that happens off the grid right now and illustrates your point: one of the things I do in my spare time is play music, and host musicians. Mostly it’s DIY and there’s not much money involved, but every now and then there’s no money at all. One gal that came through town had a tank full of vegetable oil (converted old diesel car), and was provided more of the same, along with food, and a place to stay. I doubt she spent a dollar within 4 days and 400 miles in either direction of her. Most of it was done by negotiation (as is the case w/a lot of traveling creative folks) and agreement. I’m not sure it’s a blockchain exactly, but there’s some commonality there.
thanks Joe. that’s a great story.
bartering used to be a very common value exchange method.
maybe it will come back with cryptocurrency-enabled services.
Yep it’ll be interesting to see what happens with all that value that’s been centralized / at times inaccessible but there all along, one of the reasons I think about the blockchain a lot even though finance / currency isn’t something I work on directly.
Thanks! Good display of ChangeTip’s new tipping feature within Disqus.
Not sure, but here’s some more info on them: http://blogs.wsj.com/digits/2015/03/10/secretive-bitcoin-startup-21-reveals-record-funds-hints-at-mass-consumer-play/. @fredwilson:disqus may have some more info on them as I know one of his LPs is an investor in that $116m round ($116m?!!!!) they just announced.
One possible example: sharing your genome with HLI (http://www.humanlongevity.com/science-technology/human-genomics/) and transacting with HLI for services powered by its human genome database?
So how does it work?
HLI pays users that share their genome? Then they use that as credits towards something else?
Only thing is there is no cryptocurrency or blockchain involved.