In part one of this article (https://reddcointalk.org/topic/18/three-part-article-part-1-a-future-for-cryptocurrency) I gave an overview of the reasons behind short-term attitudes towards cryptocurrency investments; in part two (https://reddcointalk.org/topic/19/three-part-article-part-2-the-zero-sum-game-vs-wealth-creation) I explained the concepts of wealth, wealth-creation and the zero-sum game.
In this, the third and final part, I assess cryptocurrency and Reddcoin in the context of what has been explained in the first two parts.
It is not unusual to read posts and comments on Bitcointalk and other forums referring to cryptocurrency as a zero-sum game. This view can be traced to the day-trading craze that has exploded with the advent of cryptocurrency, but is it accurate?
It may be helpful to make a comparison with the stock market. There are arguments for and against the idea that trading stocks is a zero-sum game. By trading I mean simply looking for short-term opportunities to make a profit.
In some sense, when looking at things in a simplistic way, a trade can be said to be zero-sum: for example if one person buys a share from another person for $10 and then that share goes up in price by $1 then the buyer has made one dollar and the seller has lost one dollar in relation to that precise movement. But this is about as far as the zero-sum analogy can go.
The primary function of the stock market is not to facilitate day-trading as a zero-sum game; the primary function of the stock market is to help companies to raise money to be able to fund their activities. In this context trading helps to set the market price of a company’s shares – to set the market cap of the company being traded.
But beneath the frenetic activity that happens in the marketplace, intelligent traders are making their own calculations to come up with their own valuations. Any serious stock market investor is not simply going to take what the market says at face value; one of the important things he/she wants to know is whether a company is over or under-valued on the marketplace. So how does the investor assess the real value of a company?
To judge the value of a company share an investor may depend on traditional information such as the price-to-earnings ratio, price-to-earnings growth ratio, price-to-book ratio and dividend yield, calculations to do with potential, recent news, etc., but even when taking all these factors into consideration a company’s share value cannot really ever be calculated with 100% accuracy, as it is prone to constant change. This is in contrast to the value of a hand of cards you hold in a round of poker which, once you have made any changes allowed, is fixed in comparison with the value of the hands held by the other players in the game.
You could hold your hand of poker for a year and it would never change in value, but if the person buying the company share in the earlier example holds his share for a year it is guaranteed to fluctuate in value, depending on myriad changes affecting the complex factors that bring value to that share.
Companies create wealth
Bearing in mind what we have just read, it is crucially important not to forget what we learned in part 2 of this article: that wealth is created. A company does just this: it creates wealth; it creates things that people want. One of the key factors bringing value to a company is the value of the wealth it creates. As the value of this created wealth increases the value of a company can go up in real terms, and from this perspective the label “zero-sum game” is clearly not applicable.
In the previous part of this article I evoked making jewellery as an example of wealth creation, but of course wealth does not have to be a tangible, physical object that you can hold in your hand. There are all kinds of intangible wealth that exist: music, computer games, etc. Consider the example of a social network like Twitter. Twitter provides a service and experience that people and companies want. This service and experience is a form of wealth.
Consider that at its inception, before it had created all the wealth that is known as “Twitter” today, the company was valued at a lot less than it is today: the company’s stock was much less valuable in monetary terms, partly reflecting the amount of wealth that it had created up to that point.
A person buying shares in Twitter at that point had a share in the overall value of the company. Today, if the person has not sold any of their shares he/she still has the same share of the company but the value of this share has increased in proportion with the overall value of the company.
Reddcoin the company
Reddcoin is the “social currency” but I also believe that it is quite accurate to view Reddcoin is a fledgling open-source company.
As is the case for other companies, the value of Reddcoin is linked to the wealth created as the project continues to evolve: at heart there is the core functionality (digital currency) and the products and services built around that core functionality (tipping platform, social wallet, broadcast, etc.).
A helpful way to define the value of each Reddcoin is as a share in the open-source company; the value of the company is reflected in the “market cap”.
The reflection of Reddcoin’s value in it’s market cap is a muddy reflection, due to the fact that cryptocurrency is a new multi-faceted paradigm, akin to currency, stocks, companies, etc., while not being exactly the same as these things. I have drawn similarities between the stock market and cryptocurrency but of course there are differences. For example, a share in a company may pay dividends based on that company’s earnings. As far as I know there is no cryptocurrency that pays dividends in this way, but Reddcoin does pay interest to Reddcoin users who stake their Reddcoins, a feature that could loosely be compared to dividends but is not actually the same.
Reddcoin the social network
I use the example of Twitter in the previous section as in my mind the ensemble of the functionality, products and services that is Reddcoin today – the wealth that has been created over the course of the Reddcoin project – makes up the foundation of an emerging social network. And social networks are at the heart of what Reddcoin aims to achieve.
Generally it may be difficult to see how you could become involved in a cryptocurrency project in such a way as to add real value to the project; with Reddcoin the vision is clear and it is easy to see how anyone can do this. Simply adding yourself to the Reddcoin community and extending the reach of your Reddcoin community presence over multiple social networks adds certain value to the Reddcoin social network. Previously I have proposed that members of the community here open corresponding accounts across social networks, so that each member becomes as much as possible a hub of the Reddcoin community in the midst of these social networks: we build a social network within social networks. Here is my reddibrek Twitter account: https://twitter.com/reddibrek
A step up for those wishing to become involved is to help develop products and services that make the Reddcoin network more and more attractive and interesting to use, thus encouraging further adoption. I personally am developing two distinct projects above and beyond my writing, which will add certain value to the Reddcoin network. Coordinating these kinds of activities with the devs is important as it brings an overall coherence to development.
I write these articles because I believe that in order for the community to flourish and to become a positive force contributing to the long-term success of Reddcoin, each member – each user of Reddcoins – should have a healthy understanding of the overall project from a business-minded perspective.
I would like to help the community to develop the positive, and I believe accurate, vision of the Reddcoin project as being a multi-faceted social network, and for members of the community to feel that they are, in a very real sense, co-owners of Reddcoin the open-source company. It is crucial that the community understands that wealth is being created, thanks to the continued efforts of the core devs, other enthusiasts and the community members themselves.