Bitcoin & Crypto Value Proposition

Bitcoin & Crypto Value Proposition

Looking to show my friends the value of Bitcoin & crypto at our presentation club. A work in progress.

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Alex Klyuev

October 21, 2020
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Transcript

  1. Bitcoin + Crypto Value Proposition Alex Klyuev

  2. “The Internet of Money” Catchy, but what does it mean?

    A fundamental, base-layer protocol that allows for the transfer of value the way that the internet enabled the transfer of information Crypto’s Value Proposition in One Sentence
  3. Overview A. Bitcoin’s Value Proposition 1. The Internet has not

    disrupted the Financial System a. Overview of Internet b. Overview of friction in financial system from small to big Ú Takeaway: The transfer of value is not “digitally native”….why not? 2. Money & Government a. What is Money? b. Why Gold became history’s most popular money (~700 BC to Present Day) c. Why we developed a Gold Standard (~19th & 20th Centuries) d. Why we developed Fiat Currencies (~1970 to Present Day) Ú Takeaway: Properties of Gold that made it the best money & why it ultimately failed 3. Bitcoin’s Value Proposition a. Overview of Bitcoin Ú Takeaway: Properties of Gold + Digitally Native = Digital Gold B. How Bitcoin Works (Technology) C. A Peek into the rest of the Crypto Universe A 1 2 3 B C Free market Government controlled
  4. Money & Government

  5. What is Money? Various goods and services have value to

    humans Hunter Gatherers ~100,000 yrs. ago Early Civilization Agr. Rev. ~10,000 BC q Humans settle and specialize q The number of goods and services increases q Barter system allows for trade of goods & services Ø Non-scalable Civilization Scales q Need a transferable reference for value to allow for scalable trade q Various items emerge in different communities as a reference for value q Value is exchanged through small-scale barter Early Forms of Money Cattle Properties: Ø Utility value (food) Ø Mass adoption Ø Some cost to acquire Ø Discrete units ~9,000 – 6,000 BC Cowrie Shells Properties: Ø Utility value (ornamentation) Ø Mass adoption Ø Some cost to acquire Ø Discrete units (often woven together) Used until 19th/20th cent.
  6. What Makes a “Money”? Fundamentally, money is whatever people believe

    is money. “Money is the bubble that never pops…it just changes forms” – probably not Tim Ferris q People need to trust in a money for it to work q Utility value (often referred to as “Intrinsic value”) only matters as a factor to build trust in a money q What properties are required to build this trust? Store of Wealth Medium of Exchange Unit of Account Practical Trust Properties of Money
  7. Gold q Gold is history’s most widely adopted & consistent

    monetary asset Ø ~700 BC to Present Day Ø Used by many different civilizations (free market money) Ø Initially had utility value as ornamentation Store of Wealth Medium of Exchange Unit of Account Physical Properties of Gold Malleable – easily divisible into coins, bars, etc. Ø Does not corrode Ø Does not rust Economic Ø Scarce Ø High stock-to-flow ratio See next page
  8. Stock-to-Flow Ratio q Stock = existing supply of an asset

    q Flow = new supply created every year Ø Scarcity: how expensive is it to create more of an asset Ø Low scarcity means it is easier to dilute the value of an asset by raising the flow relative to the supply q The ratio of Stock/Flow for an asset indicates how many people are storing it as a long-term store of value SF > 1 indicates monetary value (people are holding it instead of consuming it) SF ~ 1 indicates utility value only Source: Plan B https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25
  9. Summary of Free-Market Money q Practical Properties q Medium of

    exchange & unit of account (Currency) q Trust Properties q Store of Wealth Ø People need to know that an asset will hold its long-term value in order to trust it as a money Ø An important aspect of this is a limited supply of the asset Ø Economic definition: An asset has limited supply if it is expensive to produce → Bitcoin’s proof-of-work algorithm: it is computationally difficult (expensive) to produce Bitcoins 1 2
  10. Value Comparison of Fiat, Gold & Bitcoin Centralization of Power

    Store of Wealth Medium of Exchange High Medium Low Poor Very Good Very Good (Theoretically) Works well, but not up to date technologically Poor Very Good for large transactions Ø Bitcoin’s key strength as an MoE1) is its ability to transfer large amounts of value efficiently Ø Future innovations (such as the Lightning Network) may make small transactions more scalable Ø One vision for the future is that Bitcoin acts as a bottom settlement layer for large institutions, governments etc. (i.e. a “Bitcoin Standard”) and smaller transactions are layered onto this protocol 1) Medium of Exchange Bitcoin is the world’s first fully decentralized money that functions as a store of wealth and a medium of exchange for any amount of value at the speed of the internet