Tokenomics 101: How Can Bitcoin Be Worth More Than $1.1 Trillion?
Here's how to understand what gives Bitcoin value.
As I wrote about previously, if you’re going to buy any crypto, you should understand what you’re buying, how it works and why it has value. And the key to comprehending that last bit is a subject called ”cryptoeconomics” or ”tokenomics.” This is the game theoretic system of incentives that produces goods and services in a decentralized digital economy.
I realize that sounds a bit overwhelming, but basically, it’s how to design tokens in order to incentivize people to provide certain services to a crypto network that lacks a C-suite and managers that will hire people and pay them salaries to offer those services as employees.
Another way to think about it is, if you were to try to set up a decentralized network to offer the kind of service that’s popular online now — let’s say file storage, like a decentralized Dropbox — then how would you design a coin to get people to offer up spare storage space and get the quality of service high enough that people would actually use it?
It sounds complex and esoteric, but actually, cryptoeconomics or tokenomics can be pretty easy to grasp. It’s also immensely helpful for evaluating whether or not a coin is valuable, and whether or not its price may go up.
I’ll walk you through the cryptoeconomics of the original crypto asset, bitcoin (currently worth more than $50,000, at a $1.1 trillion market cap) now, and later, I’ll walk you through the tokenomics of the second biggest crypto network, Ethereum.
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