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The best use-case for a crypto coin is as a share of an underlying economy. Take ethereum for example, their underlying asset ETH is used to power computation o

The best use-case for a crypto coin is as a share of an underlying economy. Take ethereum for example, their underlying asset ETH is used to power computation on the network. So when the network first launches you get to purchase a share of the ethereum economy for relatively cheap since the risk of failure is high. Your expectation is that once the network of apps and users is built up, that economy will grow and so will the value of your share of it. The value proposition in an ICO is that the potential upside of your investment can reasonably be 100x. I don't recall exactly but I think ether tokens sold for around 30 cents per coin which is about a 1000x return at current prices. So for the extra risk of having zero leverage in determining how the company operates, and no ability to recover assets if things fail, you hope for a much greater return than you get through traditional investments. The problem with the recent ICO wave is that the value proposition has gone completely out of whack. Instead of the underlying economy starting off at a $2M market cap and thus having huge room to grow, they're starting off at $20M or even $200+M with very little room to grow outside of the increase due to massive bubble valuations.

jedberg 9y ago
> So for the extra risk of having zero leverage in determining how the company operates, and no ability to recover assets if things fail, you hope for a much greater return than you get through traditional investments. This was the best explanation yet, thank you! It almost sounds like gambling, in that I have no control in the outcome nor any way to recoup assets, expect that I can't even calculate the odds of my return on an ICO. :) I guess my question is, what is the end game? Doesn't someone end up at the bottom of the pyramid so to speak, stuck holding the bag with the whole thing goes spiraling down?
- hackinthebochs 9y ago
  >I guess my question is, what is the end game? Doesn't someone end up at the bottom of the pyramid so to speak I think there's a chance a handful of blockchain projects will have enough utility to be sustainable long term, but almost certainly not at the valuations that are common currently. But the vast majority of them have zero long term value. The way I see it crypto is winner-take-most. There's room for one "currency" that can potentially have a Trillion+ market cap, followed by a couple of niche utility projects with maybe around 100M market cap at best, and the rest are utterly worthless.
alexasmyths 9y ago
"The best use-case for a crypto coin is as a share of an underlying economy" There is no such thing as a 'share' of that economy. "So when the network first launches you get to purchase a share of the ethereum economy for relatively cheap" No - you're not purchasing anything but a number. "The problem with the recent ICO wave is that the value proposition " There is no fundamental value proposition with coins - that's the problem. There is absolutely no way to value them. They are just worth what some folks in the crowd think and that is the beginning and end of it. "very little room to grow outside of the increase due to massive bubble valuations." ?? What is a 'bubble valuation' - there would have to be a 'normal valuation' to compare it to. There is no normal valuation for any crypto. They are just 'numbers that you buy'. It's digital monopoly money with no face value. Why not $1 Billion USD for a BTC? Why not $10 dollars? There's no rhyme or reason for the prices to be what they are at any given time. Currently it's just a function of how many people are finding out about it, i.e. correlated with Google Trends.
- hackinthebochs 9y ago
  >There is no such thing as a 'share' of that economy. If inflation is limited or even capped, and the usage of the network requires tokens, then yes, holding tokens is trivially a share of the economy.
  - alexasmyths 9y ago
    I see what you mean by that, and it's not an unreasonable position, that said, it's really hard to make the assertion that it's a 'share' in the economy. Why? Because A) we don't know there will be a fixed amount of currency - Kik owns 90% of the Kin, they could dump on the market at any time. And B) There's no reason that people are going to be forced to use a specific currency in most places. If there are people playing speculative games with a currency, well, people will just use another one. But it's fair to say that it's possible to 'gain' from an economy by buying into the currency as long as it meets certain conditions.

jedberg 9y ago

> So for the extra risk of having zero leverage in determining how the company operates, and no ability to recover assets if things fail, you hope for a much greater return than you get through traditional investments. This was the best explanation yet, thank you! It almost sounds like gambling, in that I have no control in the outcome nor any way to recoup assets, expect that I can't even calculate the odds of my return on an ICO. :) I guess my question is, what is the end game? Doesn't someone end up at the bottom of the pyramid so to speak, stuck holding the bag with the whole thing goes spiraling down?

hackinthebochs 9y ago
>I guess my question is, what is the end game? Doesn't someone end up at the bottom of the pyramid so to speak I think there's a chance a handful of blockchain projects will have enough utility to be sustainable long term, but almost certainly not at the valuations that are common currently. But the vast majority of them have zero long term value. The way I see it crypto is winner-take-most. There's room for one "currency" that can potentially have a Trillion+ market cap, followed by a couple of niche utility projects with maybe around 100M market cap at best, and the rest are utterly worthless.

alexasmyths 9y ago

"The best use-case for a crypto coin is as a share of an underlying economy" There is no such thing as a 'share' of that economy. "So when the network first launches you get to purchase a share of the ethereum economy for relatively cheap" No - you're not purchasing anything but a number. "The problem with the recent ICO wave is that the value proposition " There is no fundamental value proposition with coins - that's the problem. There is absolutely no way to value them. They are just worth what some folks in the crowd think and that is the beginning and end of it. "very little room to grow outside of the increase due to massive bubble valuations." ?? What is a 'bubble valuation' - there would have to be a 'normal valuation' to compare it to. There is no normal valuation for any crypto. They are just 'numbers that you buy'. It's digital monopoly money with no face value. Why not $1 Billion USD for a BTC? Why not $10 dollars? There's no rhyme or reason for the prices to be what they are at any given time. Currently it's just a function of how many people are finding out about it, i.e. correlated with Google Trends.

hackinthebochs 9y ago
>There is no such thing as a 'share' of that economy. If inflation is limited or even capped, and the usage of the network requires tokens, then yes, holding tokens is trivially a share of the economy.
- alexasmyths 9y ago
  I see what you mean by that, and it's not an unreasonable position, that said, it's really hard to make the assertion that it's a 'share' in the economy. Why? Because A) we don't know there will be a fixed amount of currency - Kik owns 90% of the Kin, they could dump on the market at any time. And B) There's no reason that people are going to be forced to use a specific currency in most places. If there are people playing speculative games with a currency, well, people will just use another one. But it's fair to say that it's possible to 'gain' from an economy by buying into the currency as long as it meets certain conditions.