11. Looking at cryptocurrency from 12 leading projects

In this series, we analyze 10 of the top 12 cryptocurrency projects. Since the author has already written a series of analysis articles about Bitcoin and published them on the website chainless.hk, I will not write about Bitcoin. The website has 31 articles on “Invite out Satoshi Nakamoto to Welcome the New World,” 2 articles on “Inspiration from Satoshi Nakamoto’s Thoughts,” 6 articles on “What Satoshi Nakamoto Didn’t Think of and Didn’t Say,” and 8 “Q&A on Basic Concepts of Bitcoin,” 10 articles, “Bitcoin Dollar Standard,” and 11 articles in this series “The Road to Innovation in Cryptocurrency”. The above articles form the conceptual basis for our upcoming DW20 decentralized currency and chainless platform project. The sixth place is the stable currency, the USDC. This project has no product innovation, and its functions are similar to USDT, so it is not analyzed further. As the last article in this series, this article is written at the request of readers to study the commonalities of these leading projects further. By analyzing the people and things involved, we may see the future development trend of cryptocurrency. Let’s first analyze the person:

From the perspective of the founders, the pressure they put on countries around the world

Among the founders of the 12 top cryptocurrency projects, three are Overseas Chinese, one is Ukrainian, one is Russian, and one lives in Australia, whose nationality is unknown. The rest are Americans. Americans account over 50%, and only four do not live in the United States. In the final analysis, the strength of the United States is the strength of its people. Cryptocurrency represents new finance. The proportion of Americans among the founders of the 12 leading projects is similar to that of the US dollar in global settlements. If this develops, even if the US dollar fails, the victory of emerging finance will still belong to the Americans.

What is incredible is that there are no Indians, which is very different from the current situation in Web2, where Indians dominate the US technology industry.

There are three Chinese among the founders, but unfortunately, they are not in China. Changpeng Zhao and Justin Sun are entrepreneurs who fled the mainland. If China’s policies are restrictive, why don’t Hong Kong, Taiwan, and Singapore have successful projects? In fact, USDT, ADA, and the collapsed FTX exchange connected with Hong Kong, which shows that the opportunities for the Pearl of the Orient remain.

Only two of the 12 projects had their founders leave

Among the 12 projects, Satoshi Nakamoto, the founder of Bitcoin, only made two public comments after disappearing. He states that neither Dorian nor Craig Wright is Satoshi Nakamoto; it can be considered that Satoshi Nakamoto has wholly disappeared. Although the two leaders of Dogecoin have withdrawn, they often speak out. The project has a follow-up foundation, while Bitcoin does not have a foundation, so the only project without a controller or control team is Bitcoin. Some people say that Blockstream actually controls Bitcoin, but this statement is just a rumor. The remaining 11 projects have varying degrees of actual controllers. Obviously, having actual control talents is the key to project development if cryptocurrency is to develop. Having an actual controller means there is so-called centralization, and whether a project is decentralized has become the standard for ordinary people to judge cryptocurrency projects. Many people think that as long as decentralization is right, centralization is wrong. Yes, this view is obviously contradictory to the facts. This view is very pernicious and harmful. And old guns like Rune described in “Ten of this series: DAI’s stumbling road of exploration” are misled. They can see that something is wrong at a glance but still have to wait for the community to vote to pursue a “fair” Community Governance. None of this is the essence of cryptocurrency. So, what can represent its essence?

What is the basic principle of cryptocurrency: openness, transparency, fairness, or decentralization?

Satoshi Nakamoto quoted Wei Dai’s idea of openness and transparency in the Bitcoin white paper. It became the first quotation in the white paper, which shows its importance. In addition, the entire Bitcoin issuance process is fair.

Openness and transparency are the fundamental conditions for making the ledger immutable. Only in this way can it be trusted, and no supervision is required.

Openness, transparency, and fairness are the primary evaluation criteria for observing cryptocurrency projects, and decentralization is a lower-level judgment standard. If someone operates in it, there is the possibility of doing evil, but as long as it is open and transparent, corruption can be discovered, restricting people from doing evil.

The five cryptocurrency platform projects mentioned above are transparent, and their projects’ fairness depends on the controller’s management mechanism. The exchanges and centralized stablecoins in the 12 projects have opaque parts and do not fully comply with the principle of openness and transparency.

Only the opaque parts require regulation. Parts of the market that are transparent will naturally be regulated. The current regulatory approach in the United States uses traditional financial regulatory ideas to manage cryptocurrencies and projects, which is somewhat backward. Traditional regulatory measures are also needed, but only by understanding the characteristics of cryptocurrency can targeted measures be taken. The feature of cryptocurrency is that it requires no supervision or only light supervision. Problems lie in the interface between traditional finance and the centralized part. Now, whose supervision is more suitable for the characteristics and needs of cryptocurrency projects, and whoever makes everyone feel fair, transparent, and reasonable may become the regulatory department that wins the competition.

Who will represent the equity in the project?

Among the 12 projects above, except for Maker Dao’s MRK, which represents equity, the other coins do not represent equity on the surface. Most cryptocurrency projects are confused on this issue, which creates definitional difficulties. Why is Ethereum not a security, while its equivalent Cardano and Solana tokens are?

Equity is a typical security. Equity represents ownership and can be divided into governance and benefit rights. Making an analogy based on the idea of ​​equity and analyzing tokens may be the way to crack it.

First of all, who exercises the governance rights of the Bitcoin system? Is it the maintenance programmer? It is a community negotiation mechanism between miners and programmers, but programmers must ultimately agree upon the results of any negotiation. That is an extremely inefficient negotiation mechanism. In the Bitcoin system, it is complicated to change anything because you don’t have the final say just because you have more coins. It is a disadvantage for most projects but becomes an advantage for Bitcoin.

The currency cannot have the final say, meaning Bitcoin does not represent governance.

Secondly, who represents the right to benefit from Bitcoin? It’s clearly a “miner”. The retail investors in the market have no power other than voting with their feet. The Bitcoin community and users have not directly contributed to increasing the value of Bitcoin. The Bitcoin user community contains tremendous value that is yet to be mined.

Bitcoin miners’ income and equity rights are similar without considering governance rights. Based on this forecast of income rights, mining companies can be listed on Nasdaq. If the output of all miners is regarded as the output of a mining company, can this represent the value of the Bitcoin system? Now, if one Bitcoin is calculated at US$27,169, the current annual output of the Bitcoin system is US$8.92 billion. Currently, 19.49 million Bitcoins have been mined, with a market value of $529.5 billion. There is an error since the US$8.92 billion is estimated in ten-minute units. The produced Bitcoins are incremental assets combined with existing assets to calculate the total value of Bitcoin. The Bitcoin system value can calculated according to the price-earnings ratio. If the Bitcoin system is calculated based on a price-to-earnings ratio of 10 times, it is US$89.2 billion.

The conclusion is that Bitcoin does not represent the value of the Bitcoin system. There is no uniform valuation in the Bitcoin system. Computing power competition, methods such as halving every four years are ingenious designs. These designs avoid all contradictions. I don’t know how Satoshi Nakamoto’s head grew.

The Ethereum Foundation exercises the governance of the Ethereum system in a community-democratic manner. The mortgage mechanism of the Ethereum system is to make profits for ETH. The current mortgage rate of Ethereum is 22%. Ethereum also has a destruction mechanism. The destroyed Ethereum benefits all coin holders, equivalent to profit dividends. The profits taken by the mortgagor and the Ethereum Foundation are equal to the cost of the Ethereum system. We can use the cost-benefit or price-earnings ratio method to value the Ethereum system. The Ethereum system has a complete governance structure. It does not have the form of a company but has the reality of a company.

By analogy with equity, Ethereum has dividends and profit-making methods and has income rights. Assuming that Ethereum is regarded as the company’s equity, some large Ethereum owners can still make profit predictions, just like forming a mining pool. Listed on Nasdaq. Therefore, Ethereum represents the value of the Ethereum system, that is, the value of a “virtual company.” That is the fundamental difference between Ethereum and the Bitcoin system. It must be understood here that dividends benefit all currency holders, and this mechanism does not exist in Bitcoin.

Ethereum itself also has value because it was mined earlier using the proof-of-work POW model, and the moment it converted to the proof-of-stake POS model determines the cost of Ethereum. The profitability of the Ethereum system determines the rise in the value of Ethereum. Increasing transaction volume and reducing costs are the only ways to increase the value of Ethereum. Internet companies can “come out of the pig’s wool”; the business types may be completely different, and the valuations of other Internet platforms vary greatly. Ethereum is where the wool comes from the sheep. User value depends on the number of projects users participate in on the Ethereum platform. It can be uniformly characterized as profitability by transaction volume. Both Ethereum and Maker Dao MRK tokens represent profitability. The valuation method for Maker Dao is also suitable for Ethereum and similar platforms. It is entirely wrong to evaluate the value of Ethereum using the total lock-up value (TVL) because lock-up only represents the possibility of profit realization and does not represent profit realization. It is not linearly related to profit realization.

Gary Gensler, Chairman of the SEC, believes that most other tokens are securities except Bitcoin. That is absolute because there are stablecoins that are not securities. Tokens that merely represent transactions are also not securities. Most tokens mix trading and equity, making it challenging to identify. Gary’s intuition was correct, but he still dared not say that Ethereum was a security and was noncommittal. Ethereum has the income rights of equity and, therefore, has the nature of securities. However, regarding the attributes of its governance rights, the existing securities supervision methods need to be improved to suit the needs of cryptocurrencies. It is not appropriate to manage equity coins in the same way as stocks. That is an analogy between cryptocurrencies and stocks, which are unequal and require regulatory innovation.

The problem of dual-use coin

Bitcoin does not represent equity. The subject matter of the transaction is Bitcoin, and the handling fee is Bitcoin. No matter how the price of Bitcoin changes, the transaction scale (pricing unit) does not change, so there is no problem. If the token also represents equity, one coin will be used for two purposes, and the two properties will interfere. This phenomenon is easy to occur on project platforms. The Ethereum system is a platform with other tokens, and Ethereum is used as the pricing unit when trading. However, the price of Ethereum is unstable. It is really unfair for us to use an unstable yardstick to measure the target of transactions. Therefore, this problem has given rise to the standard stablecoin used to overcome the shortcomings of dual-use coins. In this series, “Part 4, Ripple’s “Pig” Flying on the Wind” and “Part 6, Creating Dogoins Because of Love”, I suggested that they turn the token into a stablecoin and issue an equity currency. Neither Ripple nor Dogecoin’s current tokens represent equity.

Today, after the emergence of stablecoins, new projects still adopt a dual-use method when issuing tokens, which is a brainless behavior.

Proof of Stake POS method becomes mainstream

Among the 12 projects, only two are proof-of-work POW methods: Bitcoin and Dogecoin. The platform methods are all POS methods without exception. They are Ethereum ETH, Cardano ADA, open network TON, Solana Sol, and Tron TRX. Note that they all have management teams. That is to say, no platform projects without a management team. Having a team means having control, but it is not decentralized. Therefore, the market does not care whether there is a team but whether the team meets the market’s needs.

They all meet the requirements of openness and transparency, a trustworthy machine. Since people are involved in decision-making, there are differences in fairness among the above five projects.

Dogecoin may also switch to POS mode so that only Bitcoin will maintain the proof-of-work POW mode. In other words, using the POW model for projects whose purpose is not to issue coins is meaningless.

Ways to Increase the Value of Cryptocurrency Platforms

To increase the value of the platform, we must reduce costs. The proof-of-stake POS method reduces costs, which has become a common choice for all subsequent platform projects. The POS method solves an accounting problem but is still much more expensive than centralized accounting. The most significant disadvantage of centralized accounting is that it is opaque. There would be no root of credit without Bitcoin and Ethereum in the early days. The root of credit means that data cannot be tampered with, which has become the cornerstone of credit. There is no way to get a ledger hash on-chain without a root of trust. The blockchain composed of Ethereum and Bitcoin systems is the best credit root space. With the root of credit, unilateral accounting, and the hashing of the ledger on the chain, forming a transparent centralized platform for accounting, the cost will be lower than the POS method. Our upcoming chainless platform is transparent and centralized, and we will release a white paper on the chainless.hk together with the Experimental Network.

Stablecoins are the largest application of crypto platforms and cryptocurrencies

Among the top 12 projects are three stablecoin projects: USDT, USDC, and DAI. They are all application projects of encryption platforms. In distributed finance (DeFi), DAI is the largest. In cryptocurrency application, USDT is the largest, and this is no accident. Regardless of centralization or decentralization, it indicates that stablecoins are the development direction of cryptocurrency. Dogecoin DOGE and Ripple XRP have the potential to become stablecoins in the long-term trend, which will further make the project shine. Just refer to DAI for how they turn it into a stablecoin and then issue another equity currency. If you still don’t understand, you can wait for the release of our DW20 white paper. If they are transformed into transparent stablecoin projects, they will pose intense competition to opaque stablecoins such as USDT.

Centralized exchanges do not have as large a market share as stablecoins. From a traditional economic perspective, banks are much larger than exchanges. In other words, the application scenarios of stablecoins are much larger than those of Exchanges.

Advice for Pearl of the Orient Hong Kong

Regulatory innovation:

Using the case method approach, a representative case is used to formulate a regulation, which is gradually improved and perfected.

Start investment promotion:

Please return to Tether Company.

Attract leading companies such as Zhao Changpeng and Justin Sun, use government investment to increase their credit, help companies, and settle all lawsuits. Cut off front and back and establish regulations.

Recruit Ripple into Hong Kong.

Accept mainland IP real-name login, use the US$50,000 quota, and activate overseas RMB.

Issue Hong Kong dollar, RMB, and US dollar stablecoins.

Expectations for the regulatory authorities – and the warriors are guarding the four sides:

At a critical juncture when Hong Kong’s financial history experienced two turning points, John Henry Bremridge, Donald Tsang, Joseph Yam Chi-Kwong, and others are outstanding representatives of Hong Kong officials. You can imagine the pressure they endured. Everything happened yesterday. Today, the Hong Kong stock market fell to the level of 23 years ago, reaching 17,885 points. History has reached such a critical juncture again. Hong Kong is a financial center, and setting up street vendors cannot save Hong Kong. A “promising government” that achieves the level of Sir Bremridge is a warrior. No gold is pure, and no one is perfect salute! Sir Alex Bremridge, Sir Alex Tsang, and Mr Yam, the great guardians of Hong Kong.

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