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As Peter Thiel pointed out yesterday, ETH appears to be accurately valued compared to payment processing companies like Visa. Doesn’t mean it’s not useful, but

As Peter Thiel pointed out yesterday, ETH appears to be accurately valued compared to payment processing companies like Visa. Doesn’t mean it’s not useful, but maybe not a lot of room to increase the market cap.

HWR_14 5y ago
> ETH appears to be accurately valued compared to payment processing companies like Visa. How does that even make sense? ETH is valued based on tokens in circulation. Visa is valued based on money made from transactions. They aren't really related at all. It's not like ETH is doing proof-of-stake, owning ETH doesn't in any way entitle you to ongoing dividends like VISA stock would.
- ChadNauseam 5y ago
  > ETH is valued based on tokens in circulation This is not really a meaningful statement. Thiel is talking about Ethereum's market cap, which is not related to the number of tokens in circulation. Owning ETH doesn't (and most likely will never, even after the PoS merge) pay anything like dividends. The demand for ETH comes from the fact that it's necessary to pay some every time you want to interact with the ethereum blockchain. The demand for Visa stock comes from the fact that Visa will probably pay dividends or do buybacks in the future. You're right that that makes it not obvious how to compare the two. But you can still try and do the comparison Thiel might be doing. What "should" the price of ETH be? The supply of ETH is mostly fixed, so the question is "what price for ethereum equalizes the amount of ETH people are willing to buy at that price and the supply of ETH". If you assume that the demand is "whatever people are willing to do on VISA, they're willing to do on Ethereum assuming they can for cheaper" (an assumption some here will probably find dubious, but let's go with it), and that Ethereum is capable of that (which it isn't, not yet anyway), the value of the amount of Ethereum needed to do a transaction is the same as the cost of doing a transaction through VISA (since we're assuming they're perfect substitutes). Then we have to consider their costs – VISA's costs are whatever they spend on hiring programmers and servers and little cards, and Ethereum's cost is what they pay to validators to incentivize them to keep the chain secure. If we make a third assumption that these costs are similar, the market cap of Ethereum should be the same as Visa's. The market caps are actually very similar, so that's some evidence that the market believes that these assumptions are true.
  - lottin 5y ago
    This is not how you compare two industries. Comparing Visa to Ethereum, in terms of the value of the service that they provide, is not a problem at all, in fact it's very easy. For that we would use gross value added, which is the value of output minus the value of goods and services employed to produce such output. For example, in the case of Visa and Ethereum, the output is processing of financial transactions, and the market value of that output are the fees that customers pay to have their transaction processed. From that, we have to subtract the costs of all the resources employed by Visa and Ethereum to provide the service, respectively, to get the value added. These are all known quantities, which tell us exactly the market value of the services provided by these companies and/or industries, so that we can compare one with another. Market cap is absolutely irrelevant to that end.
- trophycase 5y ago
  It will pretty soon

HWR_14 5y ago

> ETH appears to be accurately valued compared to payment processing companies like Visa. How does that even make sense? ETH is valued based on tokens in circulation. Visa is valued based on money made from transactions. They aren't really related at all. It's not like ETH is doing proof-of-stake, owning ETH doesn't in any way entitle you to ongoing dividends like VISA stock would.

ChadNauseam 5y ago
> ETH is valued based on tokens in circulation This is not really a meaningful statement. Thiel is talking about Ethereum's market cap, which is not related to the number of tokens in circulation. Owning ETH doesn't (and most likely will never, even after the PoS merge) pay anything like dividends. The demand for ETH comes from the fact that it's necessary to pay some every time you want to interact with the ethereum blockchain. The demand for Visa stock comes from the fact that Visa will probably pay dividends or do buybacks in the future. You're right that that makes it not obvious how to compare the two. But you can still try and do the comparison Thiel might be doing. What "should" the price of ETH be? The supply of ETH is mostly fixed, so the question is "what price for ethereum equalizes the amount of ETH people are willing to buy at that price and the supply of ETH". If you assume that the demand is "whatever people are willing to do on VISA, they're willing to do on Ethereum assuming they can for cheaper" (an assumption some here will probably find dubious, but let's go with it), and that Ethereum is capable of that (which it isn't, not yet anyway), the value of the amount of Ethereum needed to do a transaction is the same as the cost of doing a transaction through VISA (since we're assuming they're perfect substitutes). Then we have to consider their costs – VISA's costs are whatever they spend on hiring programmers and servers and little cards, and Ethereum's cost is what they pay to validators to incentivize them to keep the chain secure. If we make a third assumption that these costs are similar, the market cap of Ethereum should be the same as Visa's. The market caps are actually very similar, so that's some evidence that the market believes that these assumptions are true.
- lottin 5y ago
  This is not how you compare two industries. Comparing Visa to Ethereum, in terms of the value of the service that they provide, is not a problem at all, in fact it's very easy. For that we would use gross value added, which is the value of output minus the value of goods and services employed to produce such output. For example, in the case of Visa and Ethereum, the output is processing of financial transactions, and the market value of that output are the fees that customers pay to have their transaction processed. From that, we have to subtract the costs of all the resources employed by Visa and Ethereum to provide the service, respectively, to get the value added. These are all known quantities, which tell us exactly the market value of the services provided by these companies and/or industries, so that we can compare one with another. Market cap is absolutely irrelevant to that end.
trophycase 5y ago
It will pretty soon