There is only one valuation principle in finance. It's present value of future cash flows. All other methods are approximations or this

I think the "cash" part is the confusing sticking part here. What currency is that in? Cash is also a position? Discounted for inflation, deflation etc. The framing of the valuation model is confined to the context of the monetary system it is within. Ie - assuming with an inflationary monetary system, I have $x cash. Where can I allocate it (at what valuation) such that I can generate a greater yield - all monetary policy implications considered.

Nope, because you can transfer between cash systems. Outsized examples to prove a point.

If Bitcoin’s are worth 1 cent each then cash flows in USD can also turn into large Bitcoin cash flows. But, Bitcoin cash flows could not turn into large USD cash flows.

Further, if Bitcoin’s value is dropping at say 15% per year then loaning them out at 10% per year is losing money vs converting them to USD, and doing nothing.

You have completely not understood anything I have written, and your example makes zero sense. Pointing out the flaws it what I can make of it - you are talking about currency conversion (this is two different monetary systems and cash positions in both). Second, your example is again talking about 2 different systems and by that metric, everybody has been losing money during the equities bull market because Bitcoin has outperformed the S and P every year bar 2, and when looking at raw purchasing power, still has outperformed even after an 85% crash. Obviously this is stupid, because in the context of the monetary system those investments were made, Apple and Tesla have done fine.

Bitcon has on net lost money every year after it was created through mining. People spend money mining, and add money to the system but the only way to extract money is for someone else to buy in. You can do a silly calculation and say if we could find a magical buyer then the net gain is their increase in price, but there is not such magical buyer which is why it's been tanking.

The core problem is Bitcoins are not a productive asset. They can't produce any cash flows.

Does cash produce cashflows? No, it doesn't - yet you would have been better off holding cash than Nvidia this year. (Note - Nvidia has cashflows and pays dividends!)

Without converting to the same currency it’s not obvious. Which is why you are taxed when an asset is sold, until then it’s purely theoretically valuable.

Suppose you sell it in six months or sixty years. Then, you can compare USD to USD and say it was a good or bad investment. Alternatively, you could say you wished you had waited a year to buy the stock.

This is important for bitcoin as you have people that buy in and have yet to sell and can’t yet say if they made a good or bad investment for them. However, with dividend stocks you can hit the point where dividends are greater than total investments thus even if nobody ever sells becase it fails the company was still a positive net investment across all investors even if some lost money.

Long story short it’s possible for companies to a net positive investment, it is not possible for Bitcoin to be. If it’s value hits 0$ then you look at all the investments and people spent X buying it, payed Y keeping the network running, and made X - Y selling it which must be less than X.

TLDR: Individials can make money in the lottery, from perymid schemes, or from Bitcoin, but on net they are all poor investments.

Yet people buy stocks that pay no dividends all the time, and often do very well because these companies create value.

Your last statement is interesting because you use the term "money" yet I'm not sure you have questioned the nature of the "money" you are making with your investments. If you imagine yourself in a glass bead economy, and you replace all of your notions of money with glass beads. You are making your investments with glass beads and making net positive glass bead investments from dividends. This is all fine in your glass bead economy. However, the day that the Venetians come with technology to make glass beads, they will subtly buy up all of your wealth because you chose a poor for of money - that you were making so much of with your investments.

https://en.wikipedia.org/wiki/Trade_beads

Alternatively, Bitcoin could be the trade beads (despite the fact they are disinflationary), but the point is the same about the assumptions being confined to the context of a single economy and currency.

Dividends come in multiple forms, buybacks for example return money to investors. Companies aloso get sold returning money to investors. However, if a company never returns money and eventually folds then on net it was a bad investment even if some people made money they made money from other people not the company.

That’s the Bitcoin model. If you want to use Bitcoins as your money then it’s even more obvious. If I sell 10 bitcoins to somone they get 9.99999 of them and miners get that .00001 or whatever bitcoin. Wait 1000 years an they are still our that .00001 or whatever coin.

Miners also got coins from the original 2.1 Million but rather than pay people they payed overhead spending electricity and depreciation on hardware. That money is simply gone never to be recovered. Sure, they can sell coins to other people, but that money is new investments.

PS: Bitcoin as a useful service is fine, people lose money to Visa every day but trade that money for other forms of utility.

I think you are confusing equities with mediums of exchange. The mechanism of value creation is different. One facilitates trade and solves the coincidence of wants. The other generates a yield.

Bitcoin has also clearly failed as a medium of exchange, but I rarely see people try and defend that.

It’s talk of Bitcoin as an investment that is more troubling. You can make money buying gold or whatever at the right time, but it’s a hedge not an investment. Holding gold has real costs and their is no dividend just the next buyer.

I’d agree with that. It’s an investment in the sense of currency speculation (which is a bit of a big bet now at this size it’s a fairly legitimate currency). It is really just a hedge and a cash position, and maybe part protest, not so much an investment. Store of value.... maybe.

I don’t think it has failed as a medium of exchange though. I used it yesterday as one. That said, it hasn’t filled as niches there, specifically the major ones.

How about VCs? Don't they fund projects based on future value?

VCs also use projected future cash flows or as the previous commenter said, an approximation of such.

So how do you value open-source "commons"?

ICOs were created precisely because these projects aren't supposed to generate profit.

I think most were designed to create a profit for at least one party...

Sure, but in which concrete cases, and how was it somehow morally reprehensible to seek compensation for open-source work?

Serious question: do you have a personal financial or professional stake in blockchain that may be colouring your view?

I'm a professional blockchain architect and before I worked in Fintech for 20 years. Most of my views are definitely impacted by my own experiences.

Then does the bias you assume others to have not apply equally to you? It doesn’t matter what arguments are made here, if you’re all-in on blockchain you’re not going to listen to any of them. Also, how do you account for such scepticism from the community? Do you think everyone just irrationally hates new technology? Given where we are that seems unlikely.

I do tend to change my opinions when presented with new evidence and took my time to go "all in"into blockchain professionally because I thought it was not going to last and in any case it was mostly a solution to a problem I was being paid to solve with other technology... Bitcoin was my enemy!

I take HN user's reaction to Web3 to be within expectations for any revolutionary technology. If von Neuman criticised FORTRAN for being too high-level and not needed for serious computer science and IBM failed at capturing the web, Warren Buffet didn't invest in Microsoft, Apple or Google, then this to me suggests that the bigger the paradigm shift, the more those who created or benefit from the status quo will fight it. It's my belief that the web as we know it was developed without security or privacy in consideration and that this is the ultimate reason why we have the current "surveillance economy" and the cyber risks affecting people, businesses and nation states and that the Web3 will offer a cryptography-first alternative within the next two years.

We could go through my comment history and you'll see that for the most part I try to share my knowledge and experience in a positive way and never assume others are irrational, but a few interactions were generally negative. I do get a gut reaction to comments that insinuate my line of work benefits criminals, for instance, and lashed out once or twice at terrible articles or blogs that were shared here and were taken as authoritative when in fact they were complete nonsense for anyone _working_ in the space. I regret those but won't delete them. This is my work and I sustain a family with it so yes I am biased but not uninformed or incapable of learning new facts.

More broadly, I'm familiar with how trends work and some aspects of the blockchain community can be off putting and the technology itself is often misrepresented as simply a "distributed ledger" but I'm also confident that anyone who cares enough to try and join a developer focused meetup (Ethereum!) or event will see the side that I try my best to represent.

> Depends on the valuation models used. There's no accepted standard yet.

Ten years and you still have no accepted standard for valuation. Hmmm.... what does that tell you about the entire space?

The lack of widely accepted valuation models is probably a major contributing factor in the dramatic decline in prices...

I'd say that widely accepted valuation models are probably a major contributing factor in the dramatic decline in prices...