Author: Arad, Crypto KOL

Translation: Felix, PANews

As the field of altcoins is filled with cynicism, the conditions for re-examining old problems have matured.

(PANews note: Cynicism here refers to the cryptographers' clear understanding of their actions, but still being unapologetic about it)

Why do altcoins have value?

If you ask the "old guns" in the crypto world, you'll mostly get boring or superficial answers—usually something like "Oh, altcoins have no value, but I'll try to profit from them before they go to zero."

This answer is unsatisfactory because it fails to explain why the altcoin market, with a market value of around $860 billion, exists.

• "Cynicism is a good servant, but a bad master."

This article aims to explain the reasons for the existence of altcoins and how the total market value of hundreds of billions of dollars is rational and will continue to be so. This article is dedicated to the crypto "old guns" mentioned earlier.

Securities Exchange vs. Crypto Frontier

Speculating on stocks has long been common knowledge—everyone knows that stocks should have a certain value.

People have witnessed many companies rise over generations, and their stock prices soar. This path has been well-trodden, leaving little room for imagination. There are two ways to make a profit:

• Cash distribution through buybacks/dividends
• Asset liquidation to offset liabilities

These paths are well-defined, easy to understand, and widely replicable.

The concept of a securities exchange can be traced back to at least 1602, if not earlier. The development of joint-stock companies can be traced back to ancient Rome.

In sharp contrast is the Crypto market. Despite many people immersing themselves in it every day, the "comprehensive imitation body" (referring to Crypto) imitating the stock market is still relatively unknown.

Imagine being a farmer in the 17th century, far from the burgeoning legal system, businesses, and global commerce that were beginning to thrive in the cities at the time.

As a 17th-century farmer, everything you produced was done by hand, with clear practical value. Your trading activities boiled down to exchanging physical goods or metal currency. Most importantly, you might only visit a big city twice a year at most.

Therefore, the business model was completely foreign to you, let alone the financial model.

You need a common-sense social framework, the "comprehensive imitation body" (referring to Crypto), to tell you: "Yes, you can assign value to pieces of paper claiming to represent abstract, invisible companies, and have their ownership guaranteed by abstract bureaucratic institutions and foreign judicial systems."

The 17th-century farmer corresponds to non-internet users today.

These people make up the majority of the population (just like the farmers of the past). They have never engaged in P2P online commerce, never bought or sold purely digital goods, never experienced the power of anonymity, never built intimate relationships through the internet, never experienced complete control over their funds, and cannot comprehend the value of a borderless, deterministic financial system stemming from an unstoppable world-state machine.

The absence of the "comprehensive imitation body" will tell them: "Yes, you can assign significant value to tokens verified by encryption, claiming legal rights in a purely digital reality"… or something similar.

Now it's understandable why people (even some crypto natives) are skeptical about whether tokens have real value.

Because crypto tokens depend on expectations of an unknown future.

We are currently in a new field. The monetization path for token holders is still unclear on several different levels; tokens face many unknown paths, leading to multiple possible outcomes. Not only are the choices of paths unknown, but the nature of the paths themselves is also unknown. "We don't know what we don't know."

However, despite the uncertainty of value accumulation, tokens still have value and should have value.

Gradual Consideration of Value

• It is possible to set probabilities for favorable and unfavorable outcomes within the token framework. One is that at a certain point in time, a strong framework can never be found to allocate value to token holders; the other is that it can be found at a certain point in time. Setting probabilities for these outcomes without knowing what these paths look like, when they will appear, or what they will ultimately look like. For simplicity, assume a "bimodal outcome"—either completely figured out or completely unclear, with a 50% probability assigned to each outcome.
• The second assumption is that Crypto will continue to slowly penetrate the financial system and global commerce (especially cross-border and/or native digital commerce). If the value of the global financial system is X dollars, and Crypto's penetration rate is 20%, then the total valuation is 0.2X dollars.
• Since the probability of "figuring it out" is 50%, the total valuation of crypto tokens can be assessed at 0.1X dollars.

Therefore, the expected total market value is determined based on the set probabilities.

The next step is to apply the same operation to individual tokens, making a second assumption: not only the probability of "figuring out the framework," but also the expected dominance of the token protocol in Crypto, and its share in 0.1X dollars.

Here's the thing: it's not about truly estimating the value of a specific token. That would be foolish and naive.

It's about understanding this: even though it's currently unclear whether token holders can profit from the success of a protocol, subconsciously, this is how the market can (and indeed does) evaluate tokens with valuations in the 9, 10, and 11-digit range.

The next time you find yourself or others rejecting a token because its value capture is zero, or mocking its holders, consider the above assumptions and consider what the possibility of the project's success in the future means for its current valuation.

Related reading: The End of the Prologue and the Beginning of a New Chapter: Reflections on the Current Situation and Future Prospects of the Cryptocurrency Industry

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