Viewpoint: The true lifeblood of crypto assets lies in historical and cultural vitality

Author: Guest Author

Compiled by: ShenChao TechFlow

This opinion piece is written by Diario, co-founder and COO of NFT Price Floor.

Hard Power vs. Soft Power

Most analyses on why Layer 1 (L1) blockchains are superior to others and become ideal investments typically focus on technical aspects. These analyses often describe innovative and groundbreaking technical features, believing that these features can solve all the problems and challenges that public blockchains have faced since their inception.

While technology is crucial, continuous improvements and discoveries in consensus design, cryptography, and distributed systems engineering (hard power) are indispensable for making this technology beneficial to everyone globally. However, it is important to remember that blockchain is not just about technology.

In fact, blockchains rely on community trust (attention), which is rooted in shared values and culture, and at its best, a universally accessible spirit. They provide everyone with the opportunity to participate in an open and optimistic history, recorded in blocks and recognized by the community. This is what we refer to as the soft power of blockchain.

Source: 0xDesigner

Blockchain is the ultimate coordination tool, the final ledger for humanity to record its digital existence and history. Blockchain is technology, but it is much more than just technology. If you judge them solely based on technical standards, evaluating their technical features while ignoring their soft power, you will miss the bigger picture.

On History, Writing, and Accounting

As Yuval Noah Harari explains in his book, Sapiens, humanity's ability to dominate the world stems from our unique capacity to cooperate in large groups, thanks to our ability to believe in stories that exist purely in our imagination.

Those stories based on shared belief systems, those cultural products that record different aspects of human existence, when combined and recorded, form history.

So how do we record history? Through writing.

On one hand, we can define history as the sum of shared stories that human communities reach a consensus on regarding their significance and validity. On the other hand, history and writing are closely linked, as there can be no true history without a recording system.

Add one more piece to the puzzle. The earliest form of writing, cuneiform, originated from an ancient accounting system that used clay tokens to track goods in early agricultural societies, such as livestock and grain. Initially, these tokens represented various goods, with different shapes indicating different items or quantities, such as a cone representing a small amount of barley.

Around 3500 BC, with the emergence of cities and the complexity of the economy, the types of tokens expanded to about 300 different shapes to cover a wider range of goods produced in urban areas. Interestingly, the ultimate driving force behind the development of writing came from the shared belief in the afterlife within Mesopotamian society.

History, shared beliefs, recording systems, accounting mechanisms, tokens… do these concepts sound familiar to you, anonymous reader?

Money and Currency as Shared Beliefs

According to Harari, humanity's ability to coordinate on a large scale stems from our unique capacity to believe in things that exist purely in imagination, such as gods, nations, currencies, and laws.

In other words, large cooperative systems like religion, trade networks, and political institutions are the result of humanity's unique fictional capabilities.

In this framework, as long as currency exists as a system of mutual trust, it relies on shared beliefs. From this perspective, Harari's argument is directly related to the theory of subjective value. This theory posits that the value of any good is not determined by its inherent properties, nor by the cumulative value of the components or labor required to produce or manufacture it, but rather by the individuals or entities buying or selling that item.

Based on this concept, the value of an item can significantly increase from the moment of its creation, as it becomes more valuable or attractive in certain cultural contexts. Many factors can influence this change, such as age, personal sentiment, rarity, etc. In short, it is cultural relevance.

But Why Does This Matter?

The theory of subjective value (STV) helps us understand all forms of value storage adopted throughout human history, such as salt, livestock, shells, gold, and crypto assets like Bitcoin and Ethereum.

However, we can only truly grasp the full power and functioning of STV by understanding Harari's argument about the key role of shared beliefs in human history.

Like human history, successful currencies and value storage are not merely products of initial shared beliefs; they are networked products that require continuous attention!

Some might say that without money, there is no fun. In the case of blockchain, you better ensure that the L1 you like has a value storage as a native asset before claiming it is superior to others. If it is not good money, it will not have good economic security. This is inevitable.

How do you ensure that your native asset truly becomes a value storage and not just a fleeting phenomenon?

The answer lies in historical and cultural vitality.

Blockchain as a Digital Historical Ledger

Remember, public blockchains like Ethereum and Bitcoin are shared, decentralized, immutable, and censorship-resistant ledgers used to record transactions and track assets.

In other words, once information is recorded on the blockchain, it is difficult to change or delete. This feature is particularly important for preserving historical records, as it ensures the authenticity of on-chain documents or transactions.

We highly appreciate this ingenious system of trustless management of transactions and balances. But what about the actual recorded history? Isn't it just as important as the underlying technology?

In my view, absolutely.

The native asset of Ethereum, ETH, derives its value from its cryptoeconomic properties as defined by the rules set by the protocol. However, as we have pointed out, without a loyal and large community recognizing the value of using the network and storing wealth in the native asset, all of this would be meaningless.

The community's shared belief in the network's value forms a rich economic history recorded on the Ethereum blockchain, serving as a public ledger. It is this rich history and the shared culture of the community that creates a positive feedback loop that continuously enhances the value of ETH.

History is merely the sum of shared stories that hold significance for a community, and there is social consensus on its importance. In the case of blockchains, their history reflects the social and economic relationships among their community members.

These relationships should not only be measured quantitatively but also qualitatively, as a reflection of the culture behind them:

• Is it fair to compare the creation of CryptoPunks and its secondary effects (leading to the development of the entire industry) with the release of a low-investment NFT collectible (leading to a temporary frenzy)?

• Can we compare the impact of Uniswap and other 0 to 1 DeFi breakthroughs with those simple 1 to N protocols that offer incremental improvements (sometimes seemingly just an excuse to sell tokens)?

Thus, while it can be said that all L1s have their own historical records in blocks, unfortunately, not all blockchain histories are equal, and their impact on their respective native assets (especially in terms of accumulating value and becoming a value storage over the long term) is also different.

Amplifying Perspective

An L1 as a coordination tool and decentralized ledger derives its value from the ability to build economic systems and multiple communities upon it. However, not all blockchains are the same. Attributes like decentralization, censorship resistance, and trustlessness were initially technical characteristics but ultimately evolved into core values (belief systems/shared narratives) that bind communities together.

Without a firm belief in these values and spirits, and without a vibrant and creative community choosing the blockchain as the home for their projects and a repository for their wealth, it is impossible to develop a rich and lasting history. This shared history attracts new members to join and helps the network grow. It is this history that provides the intangible yet crucial support for the asset: the community's trust and ongoing attention.

Take Ethereum as an example: imagine if Vitalik had not launched Ethereum through an ICO and established a foundation to manage it, how would its value be affected? What if he had not implemented the proof-of-work phase to prevent excessive token concentration? What if he had acted dishonestly and not prioritized the best interests of the network? What if Ethereum had not been chosen as the primary platform by Larva Labs, Hayden Adams, and many other founders?

The community and history of Ethereum would be entirely different. Technology is not the main issue, as it is scalable, even if it faces challenges from technical debt. However, history is irreplaceable, non-reproducible, and indelible. Only through a rich and lasting history can the native assets of a blockchain truly gain a premium!