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The future use case will be to use a cryptocurrency as an alternative to company shares. In 50 years, nobody will be using NASDAQ or NYSE to by shares of compa

The future use case will be to use a cryptocurrency as an alternative to company shares. In 50 years, nobody will be using NASDAQ or NYSE to by shares of companies. Company shares themselves will not exist, there will only be cryptocurrencies and decentralized exchanges. Investors will be paid as capital appreciation through token buybacks. There are several major financial benefits for this: - Capital appreciation resulting from token buybacks is not taxed. - The price of a token accounts not just for the value of the output of its community but also the value of its input since community members must liquidate the token in order to purchase goods or other tokens. Communities which produce more economic value than they consume will have more valuable tokens. It incentivizes not just high production, but also low consumption (which our current system fails to do). Communities which consume less will hold on to more of their tokens. The market cap of such communities will be more fragile/volatile but overall will grow much faster than that of those communities which which produce the same amount but consume more. This will create incentives for decentralization of wealth because there will be a growth penalty for holding a particularly liquid high-volume token. I've written a simulation which demonstrates these effect.

ashtonkem 7y ago
Why?
- cryptica 7y ago
  Why do we need call options, put options, futures, ETFs, Derivatives, Credit Default Swaps, debt, etc...? They're just financial instruments which allow people to maximize the returns that they can get out of their own decisions. But unlike all these other financial instruments, cryptocurrency actually makes the system fairer, more open, more fluid and it helps to decentralize wealth as opposed to concentrating it. It also redefines the concept of wealth in a better, less black-and-white manner.
  - ashtonkem 7y ago
    All of the above let you move risk around in a different way. They solve a discrete, financial problem that the others don’t. What discrete problem does moving stocks onto the blockchain solve?
    - cryptica 7y ago
      1.Extremely low entry barriers for businesses to get exposure to investors. It lowers the barrier to entry to allow any company of any size to sell a portion of their business in the form of tokens. It's not easy to get a company listed on NASDAQ or NYSE (there are huge hurdles to overcome). On the other hand, any group of people can launch a cryptocurrency and collect funding. 2. Extremely low entry barriers for new investors. Some tokens representing securities, businesses, assets or commodities can be bought without signing up to any special service if the user already holds some kind of cryptocurrency (of any kind). There are now DEXs which allow tokens to be bought without any signup process necessary. Users can generate passphrases/private keys on the spot and they are never sent to any server so the funds cannot be stolen. The UI can even be web-based so users don't even need to download anything to buy the token. 3. Cryptographic ownership. This is the strongest form of ownership possible. Only the person who knows the passphrase/private key can move the tokens from their wallet. The passphrase is not stored on any server in the network; it is never transmitted over the wire to any service; even when sending tokens - so, if used properly, it's almost impossible for anyone to hack an account to steal funds (way more secure than banks); even developers who work on the project cannot steal the tokens. Nobody, no government or any entity of any kind can separate a token holders from their tokens - It's the only asset in the world which has this characteristic. Contrast this with other financial instruments where the owner is far removed from their property... How does an investor know that they actually own 10 gold bars? Because their broker told them so? Then how does the broker know that they hold 10 gold bars on the investor's behalf? Because a centralized trading platform told them so? How does the trading platform know that these gold bars actually exist and are not full of lead? Because the vault operators said so? Each layer adds risk. If you know anything about human nature and history, you know the reality is that there is probably nothing there. The gold may not actually exist and there is no way for an investor to verify this. On the other hand, deflation created as a result of token buybacks can be verified in a way which is impossible to fake; it's 100% transparent and visible on a decentralized blockchain. If you think that #3 alone doesn't justify cryptocurrency, then you are severely underestimating humanity's capacity for collaborative deception and ignoring the reality that it's only going to get worse. The only way to solve this is through cryptographic transparency.
qqssccfftt 7y ago
In 50 years the world will be a Mad Max dystopia.
paulgb 7y ago
> Capital appreciation resulting from token buybacks is not taxed. Why would we expect the tax code to treat this any differently from share buybacks in the long run? I'm having trouble understanding why the rest of the argument would apply to crypto shares but not NYSE shares. I don't agree with the statement that our current system incentivizes low consumption; the less you consume the more capital you have to invest or consume in the future.
- cryptica 7y ago
  The buy-back could happen in a country where it is not taxed, but token holders from all countries would still benefit from token price appreciation nonetheless. Also, my simulations show that a cryptocurrency's market cap can be much higher than the value of the underlying assets from which income is derived. It depends on how strongly investors hold onto their tokens. It's a way to maximize net-worth at the expense of accepting more fragile trade volumes. So token investors can have a higher net worth and better growth of their net worth if they're willing accept more fragility. To understand this argument (as an extreme example), you can consider what would happen if a group of people were to issue 100 million tokens of a new cryptocurrency and then all together sell only 1 token each day for $1. The cryptocurrency's market cap would be $100 million. It would be extremely fragile in the sense that investors would not be able to cash out anything meaningful without completely crashing the price, but it would have the effect of giving them all a very high net worth. Moreover, my models show that this type of extreme situations with low token supply deliver higher % returns on net worth over time (assuming constant demand) but it requires extreme collaboration between participants. This is an extreme argument but hopefully it illustrates the point that there is a spectrum of fragility which can be used to gain an economic advantage and that blockchain adds an entirely new dimension to standard economics. The idea of net worth becomes meaningless because it forces you to consider wealth fragility as well.

ashtonkem 7y ago

Why?

cryptica 7y ago
Why do we need call options, put options, futures, ETFs, Derivatives, Credit Default Swaps, debt, etc...? They're just financial instruments which allow people to maximize the returns that they can get out of their own decisions. But unlike all these other financial instruments, cryptocurrency actually makes the system fairer, more open, more fluid and it helps to decentralize wealth as opposed to concentrating it. It also redefines the concept of wealth in a better, less black-and-white manner.
- ashtonkem 7y ago
  All of the above let you move risk around in a different way. They solve a discrete, financial problem that the others don’t. What discrete problem does moving stocks onto the blockchain solve?
  - cryptica 7y ago
    1.Extremely low entry barriers for businesses to get exposure to investors. It lowers the barrier to entry to allow any company of any size to sell a portion of their business in the form of tokens. It's not easy to get a company listed on NASDAQ or NYSE (there are huge hurdles to overcome). On the other hand, any group of people can launch a cryptocurrency and collect funding. 2. Extremely low entry barriers for new investors. Some tokens representing securities, businesses, assets or commodities can be bought without signing up to any special service if the user already holds some kind of cryptocurrency (of any kind). There are now DEXs which allow tokens to be bought without any signup process necessary. Users can generate passphrases/private keys on the spot and they are never sent to any server so the funds cannot be stolen. The UI can even be web-based so users don't even need to download anything to buy the token. 3. Cryptographic ownership. This is the strongest form of ownership possible. Only the person who knows the passphrase/private key can move the tokens from their wallet. The passphrase is not stored on any server in the network; it is never transmitted over the wire to any service; even when sending tokens - so, if used properly, it's almost impossible for anyone to hack an account to steal funds (way more secure than banks); even developers who work on the project cannot steal the tokens. Nobody, no government or any entity of any kind can separate a token holders from their tokens - It's the only asset in the world which has this characteristic. Contrast this with other financial instruments where the owner is far removed from their property... How does an investor know that they actually own 10 gold bars? Because their broker told them so? Then how does the broker know that they hold 10 gold bars on the investor's behalf? Because a centralized trading platform told them so? How does the trading platform know that these gold bars actually exist and are not full of lead? Because the vault operators said so? Each layer adds risk. If you know anything about human nature and history, you know the reality is that there is probably nothing there. The gold may not actually exist and there is no way for an investor to verify this. On the other hand, deflation created as a result of token buybacks can be verified in a way which is impossible to fake; it's 100% transparent and visible on a decentralized blockchain. If you think that #3 alone doesn't justify cryptocurrency, then you are severely underestimating humanity's capacity for collaborative deception and ignoring the reality that it's only going to get worse. The only way to solve this is through cryptographic transparency.

qqssccfftt 7y ago

In 50 years the world will be a Mad Max dystopia.

paulgb 7y ago

> Capital appreciation resulting from token buybacks is not taxed. Why would we expect the tax code to treat this any differently from share buybacks in the long run? I'm having trouble understanding why the rest of the argument would apply to crypto shares but not NYSE shares. I don't agree with the statement that our current system incentivizes low consumption; the less you consume the more capital you have to invest or consume in the future.

cryptica 7y ago
The buy-back could happen in a country where it is not taxed, but token holders from all countries would still benefit from token price appreciation nonetheless. Also, my simulations show that a cryptocurrency's market cap can be much higher than the value of the underlying assets from which income is derived. It depends on how strongly investors hold onto their tokens. It's a way to maximize net-worth at the expense of accepting more fragile trade volumes. So token investors can have a higher net worth and better growth of their net worth if they're willing accept more fragility. To understand this argument (as an extreme example), you can consider what would happen if a group of people were to issue 100 million tokens of a new cryptocurrency and then all together sell only 1 token each day for $1. The cryptocurrency's market cap would be $100 million. It would be extremely fragile in the sense that investors would not be able to cash out anything meaningful without completely crashing the price, but it would have the effect of giving them all a very high net worth. Moreover, my models show that this type of extreme situations with low token supply deliver higher % returns on net worth over time (assuming constant demand) but it requires extreme collaboration between participants. This is an extreme argument but hopefully it illustrates the point that there is a spectrum of fragility which can be used to gain an economic advantage and that blockchain adds an entirely new dimension to standard economics. The idea of net worth becomes meaningless because it forces you to consider wealth fragility as well.