Digital Asset Valuations (Pt ☝️)

An Absolute Beginners Guide To The Internet of Value

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The Fourth Industrial Revolution & The Internet of Value

Welcome to the Internet of Value (I.O.V.) … I’m your host Chris Berno and in this Executive Summary we’re looking at Digital Assets, why you should have a working knowledge of them and ways they’re already being deployed today as well as future implications of them for your business and your own personal wealth.

Chris Berno Internet of Value

Introduction

Long before cash money, coins, creditcards and crypto currencies people bartered. Bartering is the exchange of goods or services for other goods or services. For example, someone might swap a bag of rice for a bag of beans and call it an even exchange. But …. there were limitations to this form of commerce … imagine for example all you had to barter with were chickens and no-one really needed chickens that day .. good luck getting that fresh produce or milk you need for your family. There were also physical limitations, for example, hauling around a bunch of chickens, or potatoes, or whatever assets you were barding with wasn’t really all that convenient … fast forward 2,000 years or so from our ancestor’s seemingly simple bartering of assets to today’s complex financial operations, money or currency was introduced and countries began minting their own series of coins with specific values that were tied to metals and since coins were given a designated value, it became easier to compare the cost of items people wanted and made it much easier to exchange value and conduct business. “Money”, over time, became commonly accepted by people as an exchange for goods, services, or resources. Every country established it’s own exchange system and currencies and in doin so, solved a lot of the problems our ancestors faced exchanging value. The history of money as it evolved from precious-metal-based coins to paper currency to FIAT or government back promissory paper money that we know today is fascinating, but the focus of this executive brief is on the evolution of assets not necessarily money although you can see how the two are closely related …

Today, we live in a time when most assets are digitized in some way shape, or form and like it or not, we’re moving towards the digitization of anything we deem valuable. Most of us (humans) interact with digital assets thousands, if not tens of thousands of times every day. As a matter of fact, you’re interacting with countless digital assets right now by watching with this video from the research I put into developing this talk to the streaming media and browser applications that make it work on your device.

First lets define an assets in general …

Physical World Assets vs. Digital Assets

Some ways the government can improve citizens' online experience … Think of a physical world asset you possess … Now think about what makes it an asset? Can you resell it? Leave to your kids in your will? Does it add to your net worth? Or maybe it’s got emotional value and deemed priceless to you and your family. No matter what you picked … it probably revolves around value. To better organize and manage assets, classes and categories have evolved based on shared attributes like how the assets behave in the marketplace, the purchasing process, and how the government regulates them. Currently, financial professionals generally agree that there are four broad classes of assets: Equities (stocks), Fixed-income and debt (bonds), Money market and cash equivalents, Real estate and tangible assets <= don’t get hung up on the categories themselves - for the purpose of this summary what matters is that there is value in classification of our assets.

So what exactly is a digital asset and more importantly, why should you care?

Well for starters a digital asset, like your great great great great great great great great great great grandmothers chicken is something that conveys or holds value for you in some way shape or form. Just like that chicken had value in a free market, this video had intrinsic value all be it the rules of the trade have changed a bit, but ultimately are similar in that they both were / are worth something to someone. Let’s say the chickens value was that it fed your family and the value in this video is knowledge which in the knowledge economy may very well feed my family and yours too! (think about it).

A digital asset is anything that can be stored and transmitted electronically and that can be owned and thus, can have ownership and usage rights associated with it. Due to the diversity and variability of digital assets, ranging from ebooks and spreadsheets to billboard topping mp3s and Netflix originals. Instead of being made up of elements from the periodic table and existing in time and space as we know it, in our homes, locked up in safes, parked in our garages, in our offices or tucked away with our financial advisors … digital assets are binary in nature, that is they are digital and exist in programs and code and stored on hardware. Similar to the physical real-world assets we just discussed … digital assets convey value and they too (much like real-world-assets) are starting to get classified and organized categorized based on their functions (i.e. software, data, i.p., etc). But, unlike their physical or real-world predecessors, some categories of digital assets are starting to show some very unique characteristics that seem to defy the rules of asset valuation in real or physical-world. In her book, Digital Asset Valuation and Cyber Risk, Dr. Keyn Ruan suggests there are characteristics that separate digital assets from their physical world counterparts … namely …

Duplication does not increase digital value. (1 Porche vs 2 porches compared to 1 copy of my book vs 2 copies of my book). Digital value creation does not decrease but increases through usage. (the value of my Porsche goes down with the usages/miles the opposite is true of my blog or youtube channel) Digital value reproduction requires much lower (or zero) cost. (to get my second porches I gotta work hard vs. to get a copy of my book I can just cut and paste). So while our physical world assets are based on scarcity economics our digital assets seem to play by a different set of rules and seem to break the fundamental laws of supply and demand and follow exponential laws that seem limitlessness. For example … Once the owner of a digital asset has created intrinsic value that asset becomes more valuable the more it’s used. Take this video for example, as the create I place intrinsic value in it by creating it sensing confusion and an opportunity to help people better understand the opportunity … assuming you like, subscribe, and share this video you help increase it’s value. The network effect implies that there’s really no limit to how much this Intellectual property/content can be distributed and consumed.

And as for why you should care … you should care because just like there were problems and opportunities in our ancestors bartering model that led to countless innovations, empires, wars, feasts and famines over the past 2,000 years or so, we too have value exchange problems in the early 21st century which are about to become much more apparent as governments print currency and inflation becomes the name of the game across markets worldwide. And just like our ancestors did in the past, we too will attempt to solve these problems with new technology and ya - most likely create all kinds of new empires (and yes probably wars feast, famines) but since you’re here, I assume you’re interested in the empire-building aspect of all this… Yes, developing new ways of extracting value and wealth for new assets will create a massive opportunity for those who understand how it works and how to capitalize on it. The total digital assets universe is growing with the number of different types of digital assets exponentially increasing due to the rising number of devices applications and use cases coming online every day to consume it (think smartphone, game consoles, PC’s, smart TVs, Apps, VR headsets, tablets, and on and on).

Maybe you’re responsible for creating a digital asset solution for your organization or … Maybe you’re interested in the growing crypto market, hearing the term and want to learn more about the underlying technology … You have to start thinking about the content you’re putting online in terms of the value it creates for yourself and for others.

Digitized Assets vs. Native Digital Assets: Another distinguishing factor to consider as you start looking at digital assets is if the asset is digitized or digital native …. A digitized asset as an asset that exists in the real physical world but that has been replicated or digitized into an online version… one example may be a pair of Air Jordans or luxury home or even this pretty bouquet of flowers … all exist in the real world but all have been digitized and uploaded to a server to exist as a digitized asset perhaps for a real estate agency inventor or for a local florists eCommerce website. Consider, in contrast, a digital native asset that was born digital and exists online in digital format, for example, an ebook that only exists in an electronic version or a video game or even a made for NetFlix movie that only exists online.

Understanding some of these nuances helps you understand that rules are changing and that new forms of currency may need to be developed and adopted in order to better facilitate value storage and exchange going forward.

The scope of this brief and this channel really relates to a category of digital assets that can be tokenized using a cryptographic protocol, or so-called crypto assets and the mission of this channel will be to help raise awareness and excitement for this class of digital asset.

##Digital Assets as an Asset Class / Currency

On March 10, 1862, the first United States paper money was issued. The denominations at the time were $5, $10, and $20 and became legal currency just 7 days later on March 17, 1862. About 147 years later in 2009, the first cryptocurrency, bitcoin was introduced as open-source software functioning as a digital asset that provides a medium for exchange using cryptography to facilitate transactions, it was designed as a digital currency and to this day it functions as such. Cryptocurrencies are digital asset that provides a medium of decentralized exchange using cryptography to facilitate transactions. Rather than being backed by a central bank or a government, cryptocurrency is wholly separate from the larger monetary environment. Over the past decade, these currencies have grown in usage and utility as they exhibit advantages relative to conventional currencies. As the world of digital assets continues to evolve so does the desire and need to categorize different kinds of digital assets based on meaningful and reliable criteria and that process is becoming known as token taxonomy. There are currently three main types of token classifications - Cryptocurrency - Bitcoin, Litecoin, etc … these tend to function as a form of digital money or cash. Utility Token - this type of digital asset completes functions. Security Tokens - represent ownership or shares of ownership similar to those found in the stock markets.

These classifications will most certainly expand in the future as tokenization appears to be growing in popularity worldwide. Recently, Bitcoin and Ether have emerged as the market leaders in the cryptocurrency market. Both utilize distributed ledger technology (DLT), a shared record of all transactions called a blockchain. Cryptos can be exchanged for other currencies, products, and services. Bitcoin digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a digital ledger or computerized database using strong cryptography to secure transaction record entries, to control the creation of additional digital coin records, and to verify the transfer of coin ownership. It typically does not exist in physical form (like paper money) and is typically not issued by a central authority. They employ robust cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Records of these transactions are known as blockchains. Each block in the chain contains a cryptographic hash of the previous block, a timestamp, and transaction data. Blockchains, by design, are resistant to data modification. As of August 19, 2018, there were more than 1,600 unique cryptocurrencies available online, and the number continues to grow. Generally speaking, a crypto asset is a digital asset that can be represented by a particular quantity of cryptographic tokens that someone holds of that asset. These tokens can be transferred between online accounts on a blockchain, and are often held in crypto wallets. As the demand for trading cryptocurrencies and other categories of digital assets grows, so will the opportunity for smart, forward-thinking entrepreneurs. Does any of this sound familiar to you? To me it sounds a lot like history repeating itself and just like our ancestors before us - we have no shortage of problems to solve, we’re working to improve our ability to exchange value in the digital / information age and success has a tendency of favoring those who work on solving them.

If you’re goal is to gain wealth with digital assest (namely crypto currencies) … you’re timing is pretty excellent…

Chris Berno
Chris Berno
Tech Co-Founder, Independant Blockchain Researcher & Consultant

My research interests include establishing proof of impact of applied distributed technology, immersive & interactive media experiences and advancing UI/UX for better accessibility for users with vision, hearing & dexterity challenges.