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Assessing the relative economic impact of public blockchains

3a15c8d8249df70301184e3bf6970dd5?s=47 Nic Carter
February 05, 2019

Assessing the relative economic impact of public blockchains


Nic Carter

February 05, 2019


  1. Assessing the relative economic impact of public blockchains HBS Blockchain

    and Crypto Club The Path Forward Nic Carter
  2. • Developers: to receive market feedback on decisions • Builders:

    to determine which blockchain/protocol to build on • Users: to find out which network is the most vibrant • VCs: to calibrate attention & help founders avoid protocol risk • Asset managers: to build baskets/weighted financial products Why bother?
  3. • Huge incentives to skew the data and advertise your

    chain • Blockchains are inherently hard to read • Practitioner – academic gap Why is it hard? "When a measure becomes a target, it ceases to be a good measure.” – Charles Goodhart
  4. Problems with the “dominance index” • Doesn’t capture actual returns

    – use a real index! • Compares heterogeneous assets: currencies, tokenized equity, tokenized USD • Relies on “market capitalization” • Does the appearance of a new ICO or token actually lessen the significance of a major public blockchain? CoinMarketCap
  5. Issues with “market capitalization” for cryptoassets • What counts as

    supply? • Forks inherit the supply of the parent but often have very little uptake • Market capitalization can mask very low float & liquidity
  6. More issues with with “market capitalization” These coins haven’t moved

    since 2011 and are presumed lost or out of circulation – do you count them or not?
  7. Variable issuance/dilution rates Bitcoin Ethereum Stellar Ripple Monero 20.98 m

    147 m 142 b 100 b 22.5 m Asset 2050 expected supply n/a 72 m 100 b 100 b n/a Units at inception Defined at inception Being formalized Ad hoc Formalized 2017 Defined at inception Supply schedule 17.5 m 104 m 19.1 b 41 b 16.7 m Circ. supply 21 m Uncapped Uncapped 100 b Uncapped Ultimate supply Litecoin 83.9 m n/a Defined at inception 60 m 84 m No standard supply models means that consistent comparisons are nigh impossible
  8. Alternative measures: Transaction count BTC ETH EOS ADA BCH Tron • EOS and Tron dominate – but at the cost of centralized validation • 0-fee chains are trivial to game and create illusory economic activity • Not an ideal comparative measure
  9. Alternative measures: On-chain transaction value BTC ETH EOS ADA BCH

    Tron • Measures the usage of the blockchain for final settlement • Transaction value is harder & costlier to fake • Adjustments are made to account for non-economic activity
  10. Alternative measures: On-chain transaction value • Sample covers the last

    30 days worth of transactions • Weighting by txn value would underweight XRP, overweight BCH & Tether ** Stellar data covers XLM transfers only * XRP data covers all Ledger volume,
  11. Alternative measures: ThermoCap • ThermoCap, or accumulated security spend, measures

    the accumulated economic work present in a blockchain • Assuming that miners mine at near marginal cost, miner revenue is a proxy for miner expenditures • Since miners are committed sellers of their new coins, miner expenditures roughly equal new investment • ThermoCap is a proxy for net inflows Bitcoin’s Market Cap is $69b on rough net inflows of $11.2b
  12. Alternative measures: ThermoCap • ThermoCap gives similar results to market

    cap for BTC Dominance • The measure only covers Proof-of- Work chains
  13. Alternative measures: Realized Cap Realized cap: • Aggregate value

    of coins priced by their value when they last moved • Roughly measures average cost basis for holders Ethereum Bitcoin
  14. • Can be interpreted as platform revenues • How much

    are users willing to pay to transact on this blockchain? • Ethereum and Bitcoin dominate in fees, other chains are negligible • Some blockchains like EOS pay for security with inflation, not fees Alternative measures: Aggregate fees paid On-chain fees paid in the last 30 days
  15. Alternative measures: Addresses with a meaningful balance • Addresses with

    a meaningful balance measures on-chain ownership dispersion • Bitcoin’s forks tend to re-concentrate ownership
  16. • No silver bullet! • To calibrate relative economic significance,

    a pattern of evidence must be built • No single metric captures all relevant information • Blockchain analysis is adversarial • The moment you define a desirable metric, someone will try to spoof it • Endless game of cat and mouse • Take a holistic approach • Public blockchains are mini economies, treat them as such Takeaways