The Value of Bitcoin Lies In Its Community

An engineer might say that the value of a Bitcoin lies in the ability of its unique technology to store an immutable record of transactions, all the way back from the genesis block in 2009 to the end of time immemorial, without even the hint of possibility that someone could cook the books or doublespend the same unit of currency. That engineer might go on to say that Bitcoin could become a tasteless, odorless, borderless, soulless store of value that is accepted around the world. And in some ways already is.

They might then or otherwise go into a lengthy description of the role of miners in the process that both secures the bitcoin blockchain and mints new bitcoins. Some kind of verbal equivalent to the following diagram:

These are answers that technologists provide as to why a Bitcoin has value.

But I disagree.

The value of bitcoin does not primarily lie in the billions of dollars of hardware and electricity spent on its pursuit, though that may in fact be worthy of a significant proportion. After all, financial capital and most importantly "work," in the manner connoted by bitcoin's proof-of-work protocol, are included in that valuation. But the value of that "work" as defined does not exceed the value of the social community that is de facto created around bitcoin.

Now I'm just a mere adjunct finance professor toiling away for bread crumbs by the flourescent-pure halogen light of a temporary office, but to me, the most valuable aspect of the so-called "commodity" of bitcoin lies far beyond all its bleeding-edge tech.

Today's particular insight - that the primary value of bitcoin lies in its community - is particularly useful in describing the value of bitcoin to people who are casually interested in the subject. Maybe their friend has recently made a mint. Or they have an entrepreneur buddy readying his blockchain startup. They maybe even have a Coinbase account and a couple Ethereum in it.

This demographic is the group of people - the casual observers, the technically proficient yet overworked aspiring middle class, that bitcoin/blockchain has, until now, had trouble reaching out to and "exciting the base." I might be using a political science term in an inexact way, but I think it is an appropriate phrase here.

What I am trying to say is that iGeneration nerds are no longer exclusively in charge of this field. Bitcoin, blockchain, and other cryptoassets have created an entirely new and booming subsector of the financial economy. I mean, all of this ICO money eventually has to go somewhere, right?

Hence, the blockchain industry is being born at crypto speed. Countries are, variously and certainly in a three-steps-forward-and-two-steps-back kind of way, as we often tend to observe in China, are making their peace with blockchain in general and even some cryptocurrencies in particular. If blockchain is now going to occupy a certain and growing niche in the financial sector of the economy, then it needs fully-formed communities and mature organizations, to provide both regulatory constructs and more amiable pursuits. In a manner that certainly befits the blockchain, those institutions seem to be cropping up in an efficient and decentralized manner. The topic is already being actively academicized and certificates of study and accomplishment are proliferating. Some of these courses will prove to be useful and constitute a standard. But now, as with all things blockchain, it's kind of the Wild West.

However, as the industry develops, more and more and different kinds of people will be forced to actually work in the industry, which should naturally erode some of the negative shine associated with its hipster-cool exclusivity. The bitcoin/blockchain industry kind of sees itself as this ultra-niche product, not necessarily deserving of the revolutionary status that has been thrust upon it, which also tends to work against the burgeoning industry in the cultural milieu. Combined, these perceptions have conveyed upon bitcoin enthusiasts this sort of bon viveur status in popular culture, an "encrypted allure" if you will. A decade after its invention, bitcoin is now, finally, shedding this decidedly underground look.

And it's happening faster than even the most hardcore bitcoin maximalist could have imagined.

Here is where I can only draw on my own personal journey in researching blockchain and cryptocurrency. For me, and I think for a lot of people when they first start thinking about bitcoin the first question that comes to mind is:

Where does Bitcoin derive its value?

And that's a good question, you know!

When I would ask other crypto enthusiasts this question, typically I'd hear the hipster version of the story of that of a revolutionary renegade technology out to Mr. Robot the financial world.

They'd say things like:

• "If you're just gonna buy this stuff on Coinbase, then you might as well not even buy it. If you don't own yer private keys, you don't own yer coinz!"
• "What's the best wallet? Oh, I don't know. It depends on a lot of things. If you don't know, I'm not gonna tell ya. It's kinda complicated."

Or I'd hear the siren song of the rapt technologist rambling on about a fabulous fairy tale of a distributed cryptographic immutable ledger further secured by the alignment of economic incentives inherent in something called "proof of work."

And after you unpack that bolded statement above, which can take anywhere from a month to a year, depending on how familiar you are with some of the already complex concepts that are required to reach blockchain nirvana. For me, I was lucky in that I already understood the importance of economic incentives at least, and had at least some idea about the concept of computer programming in different languages. What I mean is like, uh, I once knew what a .css style sheet was.

... Well... let's just say it can seem like a mountain of stuff to come to grips with if you are just going to start scratching the surface of the blockchain topic. You are constantly encountering new tangential topics that you just think you might never wrap your head around. But then you do. Sometimes that's the process of understanding required in order to understand just one concept in the bitcoin-blockchain-cryptoassets space...

After you unpack all that, and then sometimes unpack that, and then unpack that, ... then hopefully you can simply explain each of the four unique aspects of the bitcoin blockchain ad infinitem with any of a variety of conversational partners from the most casual observer up to the leading luminaries of this burgeoning field.

Decentralized. Cryptographically secured and verified. Immutable. Distributed Ledger.

And even if you can do that off the top of your head, as all good technologists can, I myself still come back to one overreaching and vital element of bitcoin and blockchain's success. And it's an element that literally no one else is talking about, at least in the specific terms that I am attempting to explain today.

Yes, I know what some people are gonna say. It's 2018 and what's cutting-edge is social media marketing, so it follows that cutting-edge technology will employ some pretty sophisticated online viral marketing tactics. And yeah, we're seeing a lot of that. The space is exploding with creativity.

If you think about it, that's what you'd expect to see. Eventually, this torrent of money, according to icodata.io, significantly more than a billion dollars gets raised every month by blockchain startups, all that money eventually ends up in somebody's pocket. For a lot of these companies, that means hiring the best talent at premium prices.

I'm not trying to engage in a "gold rush" debate, and I understand the argument, but I'm just focusing on the economic signaling that goes on when higher salaries consistently appear in a budding industry. Typically, it might take a few years to develop the talent pipeline to populate the payrolls of a growing new tech sector. But in today's caffeinated social media world and distance learning MOOC environment, that talent can transform itself and be dedicated to a new burgeoning tech sector faster than ever.

So, in a sense, when you are investing in the asset class that is bitcoin and cryptoassets, you are not really investing in the cold, hard technology as much as you are investing in the community of creators and visionaries that are behind that technology. Because at these valuations, you really aren't paying for what the technology is capable of today, investors are paying for what the technology could be, in the far, far future.

That value could end up being quite a lot. But it will not be today's version of the software that nets that valuation. It'll be the iteration after the iteration after that that'll be what's going to drive value in the not-too-distant future. And the success or failure of each of those iterations is determined primarily by the people who develop the software and digital infrastructure that comprises "the blockchain."

In short, that's the value of any bitcoin-blockchain-cryptoasset enterprise.

It’s the community.

People that gather together to inspire, to celebrate, to prod, to cajole, to support one another as they strive toward a future that they believe could change the world.

Who's to say they're not right?

Bitcoin, for example, comes with a fantastic community that loves, supports, and nurtures it. For some reason, they even passionately argue about whether its data blocks should be 1 MB or 8 MB, to the point that they even call each other names and get into virtual fistfights about it. That's true passion!

Dogecoin is the perfect example. It was named after a popular Japanese meme and cute-puppy-in-general basically as a joke, but a community grew up around the project and now it sports a $500 million valuation.

Alright, stop! What? The value of a community of cute dog lovers and crypto enthusiasts is $500 million? That's crazy. Yeah, I know what you mean.

But when you think about the kind of companies that are valuable today - the FANG and BATs of the world - they are the companies that build, maintain, nurture, and grow networks like LinkedIn, Instagram, Apple Store, Amazon Prime, etc. Those networks are so profitable because they are subject to network effects, which means the companies can grow at exponential rates for extended periods of time as long as they are expanding their network.

What drives those networks? These networks that are literally worth billions and billions of dollars to Facebook and others derive their value from their users. Those users are people, not just data, and those people make up a community. Those communities right now have no stake in the networks that they are actively creating, maintaining, and growing.

?That's wrong.

One of the great goals in crypto is to more equitably redistribute the power of a network. Where gatekeepers once extracted a heavy toll from their users, either in data or attention or both, without including them in any profit redistribution, those business models are about to get majorly disrupted.

These networks that are literally worth billions and billions of dollars to Facebook and others derive their value from their users. Those users are people, not just data, and those people make up a community. Those communities right now have no stake in the networks that they are actively creating, maintaining, and growing.

That's wrong.

That's the power of the community that cryptocurrencies build. They are more than just a "Friday night beers" club for locals or some literary book-of-the-month club. These users literally bring the "network" in "network effects" to the decentralized networks that they frequent on a regular basis. They are literally what their cryptocurrencies derive their value from. It has a certain tautological elegance.

Bringing people around a common cause increases the value of the token that represents that cause.

This concept of value might be difficult to grasp at first. Difficult at least until you begin to think about what the value of any sovereign currency today is based on. Long gone are the days when a king hoarded a stash of gold in a dusty basement stocked with dragon skeletons and mead. Today's modern fiat currencies derive the majority of their value from the exact same place that bitcoin does. From the throngs and throngs of people who believe that those currencies can enable them to buy the necessities of life. If that faith gets shaken, well... Venezuela.

The difference between fiat and bitcoin is that crypto communities stand stronger together. On the grand human scale, they are a small but vocal few. Fiat enthusiasts are a fractured and disloyal tangled mass grasping for a grubstake in a game they can't win. At least with bitcoin we know approximately how many units that are going to be in circulation at the end of next month!

Let me describe the power of the bitcoin community via one amazing example.

Money 20/20 recently held a payments race where they pitted 5 racers, each with one form of payment method only, to a race across the United States. Against seemingly all odds, do you know who won?

Bitcoin.

Because of a community that has organically sprung up around a revolutionary technology and its "imaginary" currency created by an anonymous man who may or may not be Japanese or even one person.

That’s power.

The value of any bitcoin-blockchain-cryptoasset enterprise is its community.

And THAT is the true value of Bitcoin - the people who love it, the people who fight for it, the people that put their lives and their future on the line to educate, familiarize and proselytize the Bitcoin gospel.

In that sense, Bitcoin is very similar to the fiat money it may one day replace. It is said that the value of a currency can be measured by the number of people who have "faith" that it has certain value. The fiat in fiat money is derived from that same very "faith."

Whether that faith be supported by guns, butter, or mere "exorbitant privilege" as the French used to say, one can say that the US Dollar is currently very successful. Its current "market cap," to use the term in the way that the crypto markets employ, is an astounding $13.8 trillion. And it's literally growing everyday. The supply of USD on the market will surpass $14 trillion by the end of the year. By 2025 what will it be? No one knows. But we do know that there will only ever be 21 million BTC on this Earth.

Though the Bitcoin market cap hovers around $200 billion, a mere 1.4% of today's money stock at the Federal Reserve, I can't help but notice that the Bitcoin community is awash with a lot more than just "faith."

It has fervor.

So when people ask me, "What determines the value of bitcoin?"

I can only respond with one answer and that answer...

That answer is you, dear reader. It is you - the curious, the ostentatious, the visionary firebrand, the sampler, the educator… You are going to be what makes (some of) these cryptoassets so valuable in the future.

The bitcoin and crypto-in-general community attracts some of the best people in the world. And some of the worst. But in my role at FinTech Connector in Shanghai, most of what I see is a positive, vibrant community that is poised to create

the next Silicon Valley... decentralized.