Altcoin: Salsa dance music from zero to infinity

Original Title: “Alts: The Salsa Between 0 and Infinity”

Author: Arad, Crypto KOL

Compiler: Felix, PANews

As the altcoin space is filled with cynicism, the conditions for re-examining old questions have matured.

(PANews Note: The cynicism here refers to the clarity that crypto enthusiasts have about their actions, yet they still proceed with them calmly.)

Why Do Altcoins Have Value?

If you ask the crypto "veterans" around you, you will mostly receive boring or superficial answers—usually, "Oh, altcoins have no value, but I will 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 cap of about $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 cap of hundreds of billions of dollars is reasonable and will continue to be so. This article is dedicated to the aforementioned cynicism of crypto "veterans."

Stock Exchanges vs. Crypto Frontier

The stock speculation game has long been common knowledge—everyone knows that stocks should have some intrinsic value.

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

• Cash distribution through buybacks/dividends
• Asset liquidation minus liabilities

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

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

In stark contrast is the Crypto market. Despite many people immersing themselves in it daily, the "comprehensive imitation" (referring to Crypto) that mimics the stock market is still little known.

Imagine if you were a farmer in the 17th century, far removed from the burgeoning legal systems, businesses, and global commerce developing in cities at that time.

As a 17th-century farmer, everything you produce is done by hand and has clear use value; your trading activities can be summarized as exchanging physical goods or metal currency. Most importantly, you might only visit the big city twice a year at most.

Thus, the business model is completely foreign to you, let alone the financial model.

You need a commonsensical social framework, that is, the "comprehensive imitation" (referring to Crypto), which tells you: "Yes, it is possible to assign value to pieces of paper that claim to represent some abstract, invisible enterprises, and their ownership is guaranteed by abstract bureaucracies and foreign judicial systems."

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

These people make up the majority of the population (just like the farmers of the past); they have never participated in P2P online commerce, never bought or sold purely digital goods, never experienced the power of anonymity, never established intimate relationships through the internet, never felt the power of fully controlling their own funds, and cannot understand the value of a borderless, deterministic financial system that stems from an unstoppable world state apparatus.

The missing "comprehensive imitation" would tell them: "Yes, it is possible to assign significant value to cryptographically verified tokens that claim to have legal rights in a purely digital reality"… or something similar.

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

Because crypto tokens rely on expectations of an unknown future.

We are currently in a new realm. The monetization path for token holders is unclear on several different levels; tokens face many unknown paths, leading to various 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 in value accumulation, tokens still have value and should have value.

Gradual Thinking About Value

Probabilities can be internally set for favorable and unfavorable outcomes of the token framework. One possibility is that at some point, a strong framework to allocate value to token holders can never be found; the other is that it is found at some point. Setting probabilities without knowing what these paths look like, when they will appear, or what they will ultimately be like. For simplicity, assume a "bimodal outcome"—either completely figured out or completely unclear, assigning a 50% probability 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 set at 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.

Thus, the expected total market cap is determined based on the internally set probabilities.

The next step is to perform the same operation for individual tokens, making a second assumption: not only the probability of "finding the framework," but also the expected dominance of that token protocol in Crypto, as well as its share in 0.1X dollars.

Here’s the point: it is not about estimating the value of a specific token. That would be foolish and naive.

Rather, it is about helping you understand one thing: although it is currently unclear whether token holders can profit from the success of the protocol, subconsciously, this is how the market can (and does) evaluate tokens at nine, ten, and eleven-figure valuations.

Next time you find yourself or others rejecting a token because its value capture is zero, or mocking its holders, consider the assumptions above, think about the possibility of the project succeeding one day, and reflect on what these future possibilities mean for its current valuation.