Getting started with blockchain | What is a good digital currency valuation model?

The currency circle has a sensitive problem of hitting the soul. What is the value of this coin?

Value determines the price, not to mention that it is at least an important factor affecting the price. Profits in investment are the first purpose. If there is no way to judge the value, then the price can only be judged from the K line. There are some K-line experts in the industry, but if it is a newly emerging digital currency, an item that is not online. The K line has not yet come out, how to judge it? Without a good K-line, good historical data, there is no way to judge – for the new project K-line is invalid. The grasp of the medium-term long-term trend needs to consider the value of the currency itself.

Because the history of digital currency is short, and financial integration is tight, and there is a lack of supervision and chaos, resulting in almost all of the valuation models of traditional industries, even the Internet thinking that has been clamoring for years has reached the blockchain industry. So how do you assess the value of a digital currency?

The old methods are not working, and the new methods are not yet mature. Then, today we forget all the moves, and use the simplest logic, the so-called first principles, to deny the value of a digital currency. You will find that you feel that there is no value in value, and that you may have value without value.


The first basic principle , if any value can not be reflected in the price, then, for investors, there is no value . If you can't agree with this basic principle, then please turn off the article on this page and don't read it. The first priority of investment is to make money, unrespectable people, and have something to talk about.

The second principle is that any investment requires a time as a constraint . Of course, the time period for the price to reach the expected time can be extended to 3-7 months or even longer, but if it needs to be pulled for 3-7 years, then the investment target does not need to be selected only in the range of digital currency. There are more stable investment targets. The investment in digital currency should be within 3 years, and I have already relaxed this standard to the maximum extent possible . The traditional VC is also 3-7 years. I think that with the investment in the secondary market of securities stocks, I have to hold Apple stocks and Alibaba stocks for three years, and several people can hold them.

As a value investment to invest in a stock, it is also possible to take dividends every year. The digital currency is not a stock. It does not represent the company’s rights in essence. It takes bitcoin to the forked currency, and the digital currency deposit with the PoS consensus mechanism grows. The amount of coins is not dividends from shareholders. If you insist on relying on digital currency income to pay dividends on securities, the probability of failure will not be satisfactory. The investment of digital currency is more in line with the nature of investment, low buy and sell, earn the difference, short time, quick effect, and the story of a rich night, there is a sickle . The investment risk is high.

How can a product or a thing add value? First, everyone thinks that this thing seems to be very good – consensus (that is, the basis of the demand side); second, this thing is scarce enough. With the first two, you don't have to worry about not having a trading market. There is a clear-cut person who will engage in a trading market.

For example, the train ticket during the Spring Festival, can not be bought on the trading platform, naturally there will be a scalper, the price on the trading platform is 500, the scarcity is not allowed to adjust the price, the scalper will copy you to 800 copy to 1000 yuan, in fact, not the price It is the price that is originally valued. This is the basic principle of economics, or the basic law of human nature. Why does Spring Festival always buy tickets? The platform triples the price by a factor of five. Naturally, you can buy a ticket. In the past few years, economists expressed their opinions. The result was stunned by the “just-needed” argument. In fact, nothing is awkward. Nothing in the world is really just needed, except for human beings that feed on protein, water, sugar, minerals and other life-sustaining things.

Consensus and scarcity: Sufficient scarcity is easy to understand, such as 21 million btc, never added, the community does not allow the code to be issued, basically digital currency is this way, some digital currency, the annual total increase of 1% -5% said that it is more in line with the law of economics, and it seems that the organization can issue a legal currency to stimulate the economy. Actually it may not be.

Supply side

The price is nothing more than the supply and demand relationship. The supply side of the digital currency is theoretically not easy to change and transparent, but it is not necessarily the case. If you want to increase the price of the currency, either the number of people entering the market will increase, or the amount of coins entering the market will decrease. This is the reason why many designations model the liquidity after a certain number of people. However, for the mainstream digital currency, the problem on the supply side is not very large. Take the BTC as an example, the average is 50 per ten minutes, and the four-year block production is halved, totaling 21 million. Everyone counts the same starting line, Nakamoto's disappearance or the btc on the address does not move, which is equivalent to artificially locking a small part of the liquidity. The supply side model is mainly the favorite products of direct selling products. This is the core design core of the 2019 model currency. Such supply design does not help the industry and technology development. Readers who need to know the relevant information only need to search for the model currency. Basically, you can search a lot of information, and find the content about supply control.

In particular, it is pointed out that some digital currencies with the so-called bitcoin fundamentalism based on the Mimblewimble protocol, the average rate of one-time per second, will always be issued. Perhaps as a currency is meaningful, but as a medium- and long-term investment target, it is actually very pessimistic, because the quantity of supply has been increasing, even if the annual inflation rate is decreasing, just after going online, hints on human psychology. It is not very good, and the model on the supply side cannot be so casual even if it is not particularly perfect. Such a casual work is more like a stalwart test, and the risk of the test article is generally not small.

Demand side

If the supply side of the blockchain digital currency is transparent but cannot be changed, then the demand side is the core. The larger the demand side, the better.

The demand side economies of scale are also called network effects . The former is the name of academia.

So, focus on the network effect. Network effect refers to the more people who use the network, the greater the value of this network system.

Network effects are used in the Internet industry. In fact, the most classic example of network effects is the telephone. The more people use the phone, the more people can communicate with more people over the phone. The more value the phone has for each user. Big, then more people will come in. The so-called "demand creates new demand."

If you want the price of the currency to rise, you will continue to come in. People will come in voluntarily, and there must be a network effect. Some people may voluntarily come in. It’s hard to come to a wave of people. It’s hard to continue. It’s that most of the digital currency prices in history have gone down and jumped all the way, squatting there, or being stunned or waiting for the call of the pie. The cake can't afford it, he doesn't get up, the big cake is up, and he can't necessarily follow it. Therefore, a good digital currency valuation model is actually to judge whether digital currency can have a network effect .

to sum up

This article is about the good valuation model and the most basic principles. It points out the path to explore the supply model and the demand model. You can follow the path to gather information to think independently. Finally, it is concluded that the network effect is a core indicator. Then, on how to judge the economic model of the demand side of the digital currency, and to judge the network effect of the digital currency, a relatively comprehensive article is needed to specifically describe this content. The next article is devoted to this matter.

The valuation model or the evaluation method is a long way to find the correct path and go on until the final complete valuation model is obtained. A relatively complete model will help us to take a longer-term approach to digital money investment.