What's In A Dividend?
Monday 27 October 2014
Over the last couple of months, a subtle shift has occurred in the crypto world. Along with a slew of new cryptocurrencies, developers and entrepreneurs have been releasing more and more crypto assets. Slowly but surely, these are now gaining traction and are appearing in increasing number on exchanges, alongside regular coins. They look like coins, they trade like coins, so what’s the difference – and why is this such a big change in the landscape?
Back in April this year, MaidSafeCoin raised $7 million in bitcoins and Mastercoins. This wasn’t a cryptocurrency as we would typically understand the term. Instead of denoting a stake in the total money supply of a coin, this was a token for a service – essentially a share in a business. The aim behind MaidSafeCoin (‘Massive Array of Internet Disks – Secure Access For Everyone ’) was to create a decentralised internet.
Around the same time, NXT’s Asset Exchange was launched. The purpose of the AE was to allow decentralised trading of shares in businesses and other organisations – whether that meant mining companies, holdings of physical precious metals, trading outfits, gaming companies or just about anything else.
Take a look at the top 20 of ‘All’ cryptocurrencies and crypto-assets on CoinMarketCap now, and you’ll see that three of them are actually assets – with several more not far behind. It’s a shift that you might be forgiven for missing, but it may be more significant than you think.
Cryptocurrency 2.0 opens the door to something far more than fast, low-cost, decentralised currency transfer. Instead of coins, these assets represent a slice of profit-making companies. Moreover, they blur the traditional line between cash and shares; we suddenly have cryptocurrencies capable of paying dividends, and crypto-stocks being listed on currency exchanges.
But there’s a far, far greater significance to the shift from coin to asset – even if that leap has been obscured by the ease with which they can be traded and the apparent interchangeability that the related technologies they employ bestow upon them.
The difference is the same difference between gold and Apple, or oil and Volkswagen. One is essentially a commodity; the other is a revenue-generating and dividend-paying company. Whilst bitcoin offers huge advantages over fiat currencies, especially in certain areas, the extension of the same set of technologies to assets and services allows cryptocurrency to embed itself far more deeply and pervasively in the real and productive economy.
This has the potential to change the cryptocurrency sector almost out of recognition. Bitcoin is gaining traction as use-cases are found and merchants, in particular, discover its advantages. But bitcoin, let alone cryptocurrency more generally, is still predominantly ‘used’ by speculators. A minority of bitcoin owners actually use it to make purchases. The majority either actively trade it to make money (or, more likely, lose it – anecdotally some 80-90 percent of day traders come out in the red), or hold in the hope of huge gains in the event of widespread adoption. Manipulation is rife, especially in the smaller currencies, and sentiment dictates the market over fundamentals.
In short, crypto is highly volatile, making it the ultimate speculator’s toy.
Although bitcoin rarely sees the wild, double-digit swings it used to, significant day-to-day fluctuations
are still the norm and no one could claim it is anything close to stable
– though bitcoin is the most stable of cryptocurrencies.
The problem is that no one can agree what a bitcoin should be worth. There are plenty of estimates of what its ultimate value could or should be, ranging from anything from zero or a few dollars up to six or even seven figures – and everything in between. The reality is that no one knows. (The most common answer is that bitcoin – like everything else – is ‘worth what someone will pay for it’. Unfortunately, that sum seems to change in the blink of an eye.)
This is why the development of crypto assets should be good news in more ways than one. Plugging cryptocurrency into the real, productive economy means there are finally ways to value it properly. With the advent of dividend-paying cryptostocks, owners have a new reason to hold in the interests of receiving future income from their investments, as well as gaining some idea of a fair price for their purchase. Typically, shares in the real world are valued at some multiple of their dividends – exactly what multiple depends on the sector and other factors, but the principle holds good. Revenue provides a guide for valuation.
Brave new economy
Finally, decentralised crypto-companies hold out hope for a new model of doing business. Take SuperNET, for example – an initiative that aims to draw together the best features of bitcoin and other cryptocurrencies and leverage them with a network of related revenue-generating services, including everything from entertainment and advertising to exchange fees and news syndication. SuperNET trades against both bitcoin and NXT. Unfettered by regulation, internal bureaucracy, large overheads or fixed salaries, it can offer profit margins of ninety percent. Development happens at the speed of thought, not paperwork. All of this should become the standard for future crypto companies and their assets.
At the beginning of 2014, few people foresaw how the development of crypto assets would change the cryptocurrency space.By the end of the year, it will be blindingly obvious.
comments powered by Disqus