EC The Store Of Value Generation Is Kicking Your Ass And You Don’t Even Know It

Stamp Collection

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What is something worth? A building, a pen, a stock, a cryptocurrency, gold, Intellectual property, any asset? Valuing something we own has always been more art than science.

When I was a kid and started to collect stamps, I collected them because my mom had done the same as a kid. She turned me on to the history lesson that came with collecting stamps. Then when I got to be about 15 and started going to stamp shows to add to my collection I quickly realized that there were inefficiencies in that market. The same stamp was selling for different prices at multiple stamp dealers at the same show. It didn’t take me long to realize I could buy from one and sell to another.

I literally bought a stamp for 50 cents from one stamp dealer and an hour later sold it to another dealer at the same show for $25. I quickly went from being a collector to being “an investor”, trying to take advantage of these inefficiencies and saving some money to help pay for college.

Watching what has happened with Wall Street Bets reminds me of those days. There are inefficiencies and traditions in every marketplace that have become so engrained by the power players that they literally think they are “rules” that most, if not all participants will follow.

Until they don’t

It often starts on a small scale, a kid finding discarded items, cleaning them up and selling them on ebay, turning this into a business. Or getting trading cards from somewhere, looking up the value online and selling them for more, turning this into a business. You love to see it.

The path of finding inefficiencies has followed an interesting path from purely analog when I was a kid, you had to have something, go somewhere and sell face to face or by mail, or use an intermediary like a broker, to using the internet and sites like ebay or other marketplaces to sell their physical goods.

Now we are seeing the next step in that evolution. What happens when everything is digital? What happens when literally anything digital can be a store of value? Including a share of stock?

What is a store of value? Its something that some number of people assign value to and are willing to pay for and then hold on to, hoping that circumstances increase the value of that item. One of the most historic and visible stores of value is Gold.

Gold bugs would tell you that Gold is a store of value because of its history as the foundation for currency, or actual use as currency. That its a hedge against inflation. That it has intrinsic value because its used for manufacturing and jewelry. It’s all narrative. There are plenty of other “precious metals” that meet the same criteria. But Gold has more buyers. When the number of buyers increase, the price goes up, and vice versa. There is nothing unique or special about gold other than enough people believe the story to buy gold.

Trading Cards, Art, Cars, Stamps and many other “collectibles” are also perceived as a store of value. One of the reasons they have worked as a store of value is that they require physical ownership as proof of existence and confirmation of scarcity. We have a good idea of how many of most collectibles were created and the physical presence of that good is confirmation that its real (most of the time, fakes obviously do exist and fraud is an issue), but for the most part we trust the Picasso is a Picasso and the Luka or Lebron Rookie cards are real as well.

Of course those who collect them as an investment hope that their value will go up, and they very often do go up, leading to profits for those who own and then sell them. In the analog world, pre block chain world they were the only game in town.

But something changed over the past 3 years (Crypto enthusiasts will tell a different story saying this has been going on since 2009). The block chain has evolved to support smart contracts and the ability to uniquely identify digital goods and the transactions associated with them.

What is a digital good that can be sold? Literally ANYTHING digital. If it can be generated and saved in a file format, then it can be defined as part of Smart Contract. That Smart Contract can be powerful with plenty of “If this than that” rules that allow for levels of control of that digital good which in turn can define its availability or scarcity, what happens when its sold, whether ownership is conferred, and my favorite and what i think its possibly the ultimate game changer, whether or not future sales pay a percentage of every sale to the person/company who originally minted the digital good.

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William K. 4 weeks ago Member's comment

Thanks for the extended analysis complete with conclusions and opinions. Very good reading indeed.