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Author Topic: Empirical/mathematical method to choose which cryptocurrency community to join  (Read 5093 times)
Peter R
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April 15, 2014, 05:55:08 PM
 #1

An empirical/mathematical method to choose which cryptocurrency community to support


NOTE: CROSS POSTED FROM ALT-COIN SECTION: https://bitcointalk.org/index.php?topic=572085.0


I've been fascinated by the rise and fall of various cryptocurrencies, and this fascination has lead me to study what it is that gives a coin legitimacy and lasting value.  I've concluded that the value of a cryptocurrency is stored in its blockchain ledger by the shared agreement within the community that the ledger is legitimate--"money is memory" in other words.  I've concluded that the value of this ledger grows with the coin's user base and economy.  

While working on methods to quantify this, I've found some startling relationships.  Since bitcoin has the longest history, we can learn a lot from the data we already have.  The value V of bitcoin's ledger appears to follow Metcalfe's Law such that V is proportional to the square of N, where N is what I refer to as the generalized user base.  Below is a log chart of bitcoin's Metcalfe Value versus its market cap over its complete price history:




The market price dances about the value trying to predict what will happen next.  

Each community member adds a different ΔN-value to the coin.  Someone like Patrick M. Byrne (CEO of Overstock) brings a large ΔN-value to bitcoin because his involvement has a pronounced effect on the coin's economy.  Someone with 0.1 BTC that enjoys gambling at just-dice.com brings a smaller (but still positive) ΔN-value to the community.  

Let's face it, people make decisions based on their enlightened self-interest.  All else being equal, why settle for less when you could have more?  The question then is "what community should you join if you want your contributions to be maximized?"

Since

   V = c N2,

by differentiating we get

   ΔV = 2 c N  ΔN = √(4 c V) ΔN.

This means that the value you bring to the community (ΔV) is proportional to how productive you are (ΔN) but scaled up by the square root of the value that already resides in the community.  In other words, if you know yourself to have positive productivity and if you want to maximize the value of your contributions, you should join the cryptocurrency community that already has the most value.  

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April 15, 2014, 09:24:01 PM
 #2

Thanks for taking the time to share the work you did.  That seems logical to me though I can't say all variables were considered I still like how you went about it.  So yea correct me if I'm wrong but I'm getting the feeling you think BTC is a good choice to invest in. Smiley
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April 16, 2014, 05:36:59 AM
 #3

This means that the value you bring to the community (ΔV) is proportional to how productive you are (ΔN) but scaled up by the square root of the value that already resides in the community.  In other words, if you know yourself to have positive productivity and if you want to maximize the value of your contributions, you should join the cryptocurrency community that already has the most value.  

Assume that the Bitcoin blockchain protocol is slightly modified to support sidechains, i.e. merged mining of sidechain blockchains.

To the extent that interoperability and value exchange closely couple a sidechain peer network to the Bitcoin network, your results indicate that it would be better for developers to build new features as a sidechain rather than as an altcoin.

http://letstalkbitcoin.com/blockchain-2-0-let-a-thousand-chains-blossom/#.U04XsR__5k8
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April 16, 2014, 07:26:26 AM
 #4

bitcoin is the biggest and thus the baddest cryptocurrency

nothing really compares

im sticking with bitcoin

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April 16, 2014, 09:47:57 AM
 #5

Umm i think everyone will stick with bitcoin and litecoin other cryptocurrencies are worthless now really and i don't think they will get mroe valuable.
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April 16, 2014, 04:52:38 PM
 #6

This means that the value you bring to the community (ΔV) is proportional to how productive you are (ΔN) but scaled up by the square root of the value that already resides in the community.  In other words, if you know yourself to have positive productivity and if you want to maximize the value of your contributions, you should join the cryptocurrency community that already has the most value.  

Assume that the Bitcoin blockchain protocol is slightly modified to support sidechains, i.e. merged mining of sidechain blockchains.

To the extent that interoperability and value exchange closely couple a sidechain peer network to the Bitcoin network, your results indicate that it would be better for developers to build new features as a sidechain rather than as an altcoin.

http://letstalkbitcoin.com/blockchain-2-0-let-a-thousand-chains-blossom/#.U04XsR__5k8


Yes.  If my analysis above is to be believed, it suggests that developers would add more value on average by innovating on sidechains than on alt-coins because they immediately have a larger accessible user base1.

The analysis also applies to anyone who wishes to contribute to cryptocurrency in any way.  You contribute by holding coins, by building businesses around the coins, by building technologies that sit on top of the coins, or even by posting here at this forum!  The analysis suggests that your efforts will have the biggest positive effect if you join the cryptocurrency community that already has the most value.  

This is a reinforcing mechanism making bitcoin stronger relative to any particular alt-coin the more valuable bitcoin becomes.  


1The trouble I see now is that because of the assymetry of knowledge regarding the underlying dynamics, devs can add more value for themselves at the expense of the newbies that don't understand.  My spin-off proposal is an attempt to neutralize the pump and dumps (while side-chains move innovation to the blockchain.)

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April 16, 2014, 05:50:18 PM
 #7

The analysis also applies to anyone who wishes to contribute to cryptocurrency in any way.  You contribute by holding coins, by building businesses around the coins, by building technologies that sit on top of the coins, or even by posting here at this forum!  The analysis suggests that your efforts will have the biggest positive effect if you join the cryptocurrency community that already has the most value.  

This is a reinforcing mechanism making bitcoin stronger relative to any particular alt-coin the more valuable bitcoin becomes.  

Thanks for elegantly stating what my intuition over several years has suggested that I do.
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December 07, 2016, 01:00:51 PM
 #8

metcalfes Law
value of telecommunications network is proportional
to the square of the number of connected users of the system (n^2)

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thejaytiesto
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December 07, 2016, 03:08:39 PM
 #9

Bitcoin is king, but gambling with altcoins can sometimes give you a lot more bitcoin and that's the point. For example, with the ETC pump if you bought at the beginning you could have x10 your initial investment and end up with a lot more BTC to store long term. Time is running out to make more BTC so we need alts to profit from pumps and dumps, no other way besides working and who wants to work right.

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December 07, 2016, 03:39:04 PM
 #10

if you want to maximize the value of your contributions, you should join the cryptocurrency community that already has the most value

Somehow I feel that you've missed something in your math.

While the coin with the strongest community and money behind it sounds like the safest bet, there are other cases where, if you invested at the right time, you can get into the community just fine and your investment will pay off much better than average.

The 2 cases I know of are ETH and XMR. The ones starting when the coin was low gained a lot. Of course, there's a good change that the things go wrong (or you find a super pump) and you have to cash out "early", but still a 5x or more revenue is something nice to get. Even Bitcoin, at start the value (and the money in it) was small, but in time the added value is great.

Maybe studying only the start of Bitcoin curve could give you more data? Because I think that's more interesting to see which coin / if any will have a new "lift off" point.

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December 08, 2016, 06:50:09 AM
 #11

An empirical/mathematical method to choose which cryptocurrency community to support


NOTE: CROSS POSTED FROM ALT-COIN SECTION: https://bitcointalk.org/index.php?topic=572085.0


I've been fascinated by the rise and fall of various cryptocurrencies, and this fascination has lead me to study what it is that gives a coin legitimacy and lasting value.  I've concluded that the value of a cryptocurrency is stored in its blockchain ledger by the shared agreement within the community that the ledger is legitimate--"money is memory" in other words.  I've concluded that the value of this ledger grows with the coin's user base and economy.  

While working on methods to quantify this, I've found some startling relationships.  Since bitcoin has the longest history, we can learn a lot from the data we already have.  The value V of bitcoin's ledger appears to follow Metcalfe's Law such that V is proportional to the square of N, where N is what I refer to as the generalized user base.  Below is a log chart of bitcoin's Metcalfe Value versus its market cap over its complete price history:




The market price dances about the value trying to predict what will happen next.  

Each community member adds a different ΔN-value to the coin.  Someone like Patrick M. Byrne (CEO of Overstock) brings a large ΔN-value to bitcoin because his involvement has a pronounced effect on the coin's economy.  Someone with 0.1 BTC that enjoys gambling at just-dice.com brings a smaller (but still positive) ΔN-value to the community.  

Let's face it, people make decisions based on their enlightened self-interest.  All else being equal, why settle for less when you could have more?  The question then is "what community should you join if you want your contributions to be maximized?"

Since

   V = c N2,

by differentiating we get

   ΔV = 2 c N  ΔN = √(4 c V) ΔN.

This means that the value you bring to the community (ΔV) is proportional to how productive you are (ΔN) but scaled up by the square root of the value that already resides in the community.  In other words, if you know yourself to have positive productivity and if you want to maximize the value of your contributions, you should join the cryptocurrency community that already has the most value.  

I`m not very good at mathematics, so i will stick to bitcoin. Grin

I don`t trust most of the altcoins and i won`t use them.



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Torque
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June 14, 2017, 05:46:34 PM
 #12

Hi Peter,

I know that you haven't updated this thread in quite a while. But I would be curious if you could update your original stat chart with the updated data for Bitcoin? I'm very curious to see what the long term data reveals now.

Regards. -T.
zeitspringer
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November 03, 2017, 08:23:50 PM
 #13

Hello Peter,

very nice and interesting work!!!

I suggest to look at another crypto, f.e. Ethereum or Litecoin. What does your theory say about them?

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November 27, 2017, 01:34:09 PM
 #14

Hi Peter,

this is great work. Do you mind update this after we getting two more years data?

Thanks
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