What is a base layer coin?
Many feel it should be looked as similar to a stock. We all know this is the position of Gary Gensler of the Securities and Exchange Commission. Others want to look at it similar to a currency, akin to what national currencies are. Another set of people view them similar to bonds since there can be staking mechanisms applied.
Whatever the viewpoint, it does not capture what is taking place.
Ultimately, look at these networks like a company is a mistake. That is understating the size and potentiality. It also overlooks some of the basic characteristics of what is taking place.
Therefore, applying things such as P/E ratios, market capitalization, and other market related terms is not ideal. The actuality is that we should concentrate upon those which we typically apply to countries.
Here is where rather uninteresting terms such as the velocity of money enter.
Developers Are Like Construction Companies
We covered the concept of the network-state a great deal on here, hence we will not dive too much into it.
One point that is worth bringing up is how software developers are akin to construction companies in the physical world. They are the ones who are erecting the structures the "town" will utilize.
This is a very important concept to grasp. As development expands, the economy of the network can advance. It is an organic system that spreads in many directions. When entrepreneurs see gaps in the market, they seek to fill it.
Like construction companies, money is needed. Economies do not grow without an expansion of capital.
The idea is not solely the focus upon the value that is generated. It is obviously important that valuable things are being built. However, the ultimate goal is what does it add to the network's economy. If we use the contemporary term, GDP, we can see how it is framed.
A building has some value. There is appraisal for tax purposes. We also see value established when it is sold.
That said, the value of a build could pale in comparison to what is generated by the business that occupies it. We could have a commercial structure, with the land, worth $500K. The company that is housed in that could be generating tens of millions in revenue. It could be employing hundreds of people, providing incomes for those families.
Through this simple example we can see how value, while important, is dwarfed. It is the difference between an economy and a business.
The Nation-State Quest
The price go up crowd obviously are way off course here.
We know the entire crypto-asset space is hindered by the fact that almost all the attention is on market price. In the long run, this is really not relevant.
Again, if we look at a company like Amazon, people talked about the stock price in 2018. Does that matter today? Did it affect the eventually course the company took?
It we extrapolate this on a larger scale, does the coin price of a base layer network really matter as compared to what is being built? This is the foundation for the future economy. Markets have little impact into that since they are rather poor at valuing anything. In fact, the track record with companies is abysmal, do we really think they can get it right on a larger scale?
The quest of a blockchain network is to operate akin to a country. This means laying the groundwork which allows businesses to be built. Everything that goes into an economy is relevant. We are going to have different sectors that contribute to our overall performance. People will be earning their livings off what is developed here. financial services are required to meet the needs of the business community.
In other words, there is a lot more than just green candles and when will the bull market hit.
Transactions
Activity is the lifeblood of any economy.
From this perspective, we can look at it as the means of economic productivity. With our digital "nations", the more transactions results into a stronger well being of the economy.
This is a way to calculate our "GDP".
Naturally, we are not dealing with a perfect science here yet the concept is valid. Economies are filled with all kinds of transactions, not all of them financial. With cryptocurrency, the focus is always upon the financial. Little thought is given to the other aspects of these systems.
That is like a country having a robust financial network, strong market yet there is no commerce. People can trade financial assets but if there are no purchases for groceries, everyone starves.
It is the same with our digital nations. The fact that everyone is looking at the financial is a clear indication of why we have little overall disruption. We are essentially a one trick pony, one that is rather old.
After all, was Amazon dependent upon the dotcom bubble and the market pricing there for its future success? Did it add to the digital economy in spite of the wild price moves of a couple decades ago?
We know the answer to this.
This entity now does hundreds of billions in annual revenue. It is one of the largest companies in the world and adds a huge amount to the local along with national economy.
What is the market capitalization of the United States? Does anyone have any idea? The answer is nobody knows. There are a few people to tried to establish the balance sheet of the U.S. Guesswork at best.
The reality is we do not care about this metric since it has no relevance. Instead, anyone with a search engine can quickly find out what the GDP of the U.S. is and compare it to other countries. A case could be made this is not a relevant metric and I would not completely disagree. However, as a standard comparison it works while being easy to find.
My point is we are dealing with something completely different. The value of a base layer network is not the market cap of its coin. Even using the real estate analogy, the value of the building(s) is a fraction as compared to the economic productivity generated from inside them.
This is how we should start looking at these networks. Once people realize that, the potential will suddenly click to them.
It is a completely different asset because it is unlike the assets we are familiar with.
Layer 1 networks are more like countries than businesses. It is time to approach them that way.