Cryptocurrency is still considered the Wild West. This stems from the fact that many feel that, without regulation, it is not safe. Of course, many also feel that most of the establishment is a lawless mecca since it is only selectively applied. Either way, cryptocurrency is evolving.
Speculation is still running wild. That is the bulk of what is taking place. However, we are starting to see the formation of another current that is advancing things in a different direction.
Businesses are developing. We are seeing the introduction of use cases. No longer is it solely about the coins tied to blockchain. Instead, cryptocurrency represents a new ownership format that is expanding who can participate.
Cryptocurrency 2.0
What is cryptocurrency 2.0?
This is the idea of tokenization applying to businesses. Over the last couple years, as platforms are built that provide services, business models are being introduced that allow anyone with, even the scarcest of resources, to participate.
For the moment, we are at the start-up phase but this is going to expand over the next few years. Areas such as DeFi and NFT market saw a lot of platforms emerge. Some such as Uniswap are tokenized, allowing for people to acquire the tokens. For the moment, that doesn't entitle much although that could change in the future.
One of the main tenets is going to be cashflow and the creation of profits. Just like traditional businesses, these entities are going to seek to create real and sustainable value. Those that pull this off are going to enjoy massive appreciation in their token value.
In other words, we are seeing the emergence of tokens that are tied to real underlying businesses. While this can still be speculation, it is a different type. Suddenly, people can start to determine how to value these tokens.
Base layer tokens are going to remain vital of course. However, the introduction of Cryptocurrency 2.0 is going to bring in another type of investor. It also will provide a much greater degree of legitimacy to all this.
Internet Transformation
There was a time where we basically operated in an analog world. Then we saw the Internet emerge and everything changed. The old metrics of valuation were obsolete. People were wondering how do you value these new entities?
Of course, speculation ruled for a while with the DotCom bubble becoming historic. Nevertheless, out of the process came the ability to understand what was taking place.
We have another transformation taking place that is going to require different metrics along with understanding.
Essentially the process looks like this:
Analog ----> Internet ----> Blockchain
In a blockchain-based world, how are we going to value all that is taking place? This is a question that people are going to spend the next few years trying to figure out.
Just like the business model of an Internet company did not match what was in the physical world, we see the same difference with blockchain. There is no way that a Web 3.0 company is going to mirror what we utilize in Web 2.0. While the use case might se similar, the business structure is completely different.
Here is where we see tokenization entering the picture. This creates a layer separate from equity. While that along with cashflow can be represented in the token (or a separate one issued), we are witnessing another layer of representation. Some call it community. Whatever the term, there is a quantifying of the value that is generated at that layer.
This is something that existed before yet was not captured. It is one of the reasons why the numbers will get enormous.
The Metrics Of Community
What is a community worth? This is something that never was considered before. Businesses operated while perhaps missing most of the value created.
How do we assign value to the loyalty and dedication that customers bring to the table? Of course, whatever is reflected in the purchases is translated into an equity value of the company. But does that really capture what is taking place?
Let us Tesla because this is probably the best example of a company with a cult-like following.
Obviously we can look at Tesla financial statements and use different models to assign a value to the company. Each quarter we get the number of cars sold along with other traditional metrics such as gross profit and operating expenses.
We can also look at the company's road map to use that to project future earnings. Add in the growth rate over the last 5 years, flip that forward, and we can reasonable guesstimate where things will stand in 5 or 10 years.
Does this, however, capture the value of the Tesla community? Consider the loyal following the company has. There are people all over YouTube making videos about everything that takes place with the company. Some of these people are not even Tesla owners or stock holders. They most likely make Tesla videos since it is a profitable topic on YouTube. Nevertheless, that is a component that is not capture in terms of value.
Tokenization can quantify this. It could also serve as a medium of exchange within the community. People create T-Shirts, mugs, and assorted other goods based upon "logos" they create pertaining to the company. Why not try to capture the value the community generates?
People are creating businesses around their loyalty and dedication to this company. What is that worth? The tokenization process provides us with a market that can determine, at least from a price discovery perspective, what that is.
Business Building
We are embarking upon the stage in cryptocurrency when entrepreneurs start to take over. The foundation from a technical point is going in. Now it is time to start building businesses.
Just like Google and Facebook transformed the business model, we are going to see another alteration with blockchain businesses. What that looks like is still being developed. However, tokenization is going to allow for markets to value that which was overlooked before. The concept of community is now a quantifiable asset.
Presently we see the Venture Capitalists (VC) entering with huge sums of money. This will push development forward but will they attract the communities. One of the drawbacks to Web 2.0 was that applications were set up with the users in mind. Nevertheless, there was a point where their interests conflicted with the VCs. Hence, the monetization of the platform inevitably took place.
Web 3.0 seeks to avoid this. Here we see the potential for the users to also be financial stakeholders. This is not the case with those businesses developed using VC funding.
Will this result in those type of applications ultimately being shunned by users? That is hard to tell. What we do know is that we are embarking upon a phase where more financial resources are available as cryptocurrency expands. Thus, the ability for self-funding is growing.
Cryptocurrency 2.0 is going to provide people with access to businesses that are build on blockchain. These could be the applications that we end up using on a daily basis, making us users with a financial stake.
The emergence of an entirely new model is unfolding before our eyes.
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