> There is no way to measure the value of protocols before Bitcoin
The point is not to compare the market cap of Bitcoin or Ethereum to the market cap of previous protocols at all. The point is precisely that the previous generation of protocols created immense value but most of it got extracted at the application layer while, as you said, there are many small but highly profitable Bitcoin businesses, but the bulk of the economic value is in Bitcoin itself, not in those.
Contrast that to the web where there is little economic value in the protocol and a lot of economic value in web applications.
100% on it also going the other way, as we've seen repeatedly whenever there is a hack at the application layer. The market cap of the protocol drops at a higher rate than the "actual loss", e.g. last week's Bitfinex hack of $70mm in BTC knocked 20% off the price of bitcoin.
> When you have ~unbounded upside and capped downside, lever the fuck up.
I don't get it. Imagine I start a business offering the following opportunity: you pay me $100, I give you a fair coin, and you flip it as many times as you like. If there was no tails, I pay you $1 for every heads you flipped.
Your upside in patronizing my business is unbounded. Your losses are capped at however much you decide to invest. How much leverage is it appropriate for you to invest with?
Now, this isn't a case of capped downside in the sense of "you can lose at most $50, no matter how much you invest", but I doubt that's what you were talking about? Certainly that sort of situation is unlikely to come up in any context.
Sorry, just used to the Bitcoin community, who tend to act like the blockchain they have speculated on is the only one that has ever existed. What are your reasons for bitcoin maximalism?
Bitcoin's liquidity and network effects, in a nutshell. I don't think a competitor will be able to match Bitcoin on those fronts. And it's not just about the developer and technology community, it's about the media, governments, companies, investors, regulators, financial institutions and even regular people who are getting used to the name Bitcoin.
But, honestly, it doesn't matter. This stack is blockchain-independent. Whatever blockchain or currency ends up succeeding in the long run doesn't take away from the fundamentals of this stack: decentralization of data and processes, cost reduction, and consumer power.
I focus on the Bitcoin blockchain because that's what the market has chosen to build on top of because there are no better alternatives yet. We'll see what happens if and when they come (e.g. ethereum), but I worry that it'll be too late by then and the market won't take it.
I'll try to drill down to specifics in the series of posts that will follow this, but I wanted to set the general stage first.
To answer your question what's unsettling about this (and not in a bad way) that since so much of this stack is commoditized it becomes very hard to extract value where traditional software business do (20-50% cut rates, etc.) so it is much harder to be profitable, but at the same time it's much easier to bootstrap an application when you have access to an open pool of data.
I think it's an interesting dynamic that, if this turns out to be true, will really change the way software businesses work at the application layer. But I'm 2-3 posts away from doing a deep dive into that part of the stack – there's some things I'd like to go over first.
Given that value won't be created in the same way as traditional business do now, what plausible business models do you foresee for software companies operating in this landscape?
