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Teams and Products Aren't the Only Way to Weigh Tokens, Says Ehrsam

Don’t launch a token no one wants today.

While that may seem obvious, it’s the distilled version of the advice Coinbase co-founder and board director Fred Ehrsam gave during his fireside chat at Token Summit II, taking place today in San Francisco.

According to Ehrsam, demand in the crypto space is driven by people who are actually using the technology – largely entrepreneurs and developers working at crypto startups and early investors interested in building the basic architecture of the decentralized economy.

Demand isn’t coming from consumers interested in the prospective benefits of a blockchain-based Uber or Airbnb, he continued.

And in turn, Ehrsam – who since leaving Coinbase has continued to invest in and advise crypto projects – said that evaluating new tokens is about “matching the token and the project to the maturity of the ecosystem.”

Sure, the quality of the team and the progress they have made on building on their product are also good indicators of successful projects, but still, there are projects the world isn’t ready for yet.

Turning back to valuable projects for the ecosystem today, Ehrsam, specifically pointing to TrueBit and Basecoin, said:

“It seems clear to me that developers in this space would want a scalability solution or a stable coin.”

For example, blockchain developers, including those for the two most widely used networks – bitcoin and ethereum – have been under pressure recently for the technology’s inability to scale for new adoption. Bitcoin’s scaling debates created enough contention this year that several groups split off the main chain, creating competing cryptocurrencies.

Formula for success?

Otherwise, Ehrsam said he relies on an equation he learned as a currency trader to guide some of his investments – MV = PQ (money supply multiplied by the velocity of money is equal to the price of goods multiplied by the number of goods sold).

The velocity of money simply means how many times a given unit of money changes hands. So, if a lot of people are using a given product, then it should have a fairly high velocity, which starts to show the value of the overall protocol.

“Through this equation, I think you can start backing into how much a token is actually worth,” Ehrsam said.

However, he acknowledged (and moderator and Token Summit organizer William Mougayar agreed), this model requires more research.

Velocity, Ehrsam continued, is the most sensitive measurement in the crypto industry, since it depends on getting tokens into the hands of people likely to use them.

Because of that, many in the crypto community respond well to the “perception of fairness” in the economics of a token, whereby tokens favor potential users over speculators.

Citing the popularity of bitcoin betting site Satoshi Dice and the ethereum-clogging CryptoKitties, Ehrsam said the most valuable products today are sometimes the simplest decentralized apps (Dapps). He concluded:

“I think it’s really critical that people get the game theory around their end goal absolutely right.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase.

Image by Brady Dale for CoinDesk

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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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Who WIll Create Amazon and Instagram of Cryptocurrency?

There is much hype, promise and excitement around the whole cryptocurrency space. Blockchain technology is disrupting traditional ecosystems, cryptocurrencies are evolving the money market – but there is yet to be a pioneering native app.

Investors and crypto believers are starting to ask where this paradigm-changing idea based solely on the power of cryptocurrencies and Blockchain will come from. Who will create what Instagram is for mobile photo sharing, or what Amazon is for native web apps for e-commerce?

Programmability of money

Recently, venture capital investor Chris Dixon and Coinbase co-founder Fred Ehrsam discussed this missing piece of the puzzle on Andreessen Horowitz’s tech podcast “Why Crypto Tokens Matter.”

Dixon and Ehrsam describe the significance of cryptocurrency and its rise through the analogy of how the Web changed information.

The Web allowed for the programmability of information for the first time, cryptocurrencies and tokens allow for the programmability of money or value for the first time.

Thus, through the Internet, new businesses were opened up to the entire globe as information and data was transferred instantly. They feel сryptocurrencies can do the same for money.

Burning the boats

With this new technology now available, the world is yet to see a company that goes all in on it in order to catch the top of the wave of potentially huge success.

There are companies, like Amazon and Instagram, that ‘burnt their boats’ with the traditional ways of doing things and thus profiting hugely from the new technology.

Companies which have the greatest chance to capture the most value with every big wave of technology – such as Web, mobile, and now crypto – are the ones who go all-in on being the first native app for the new wave.

E-Commerce pioneer

Amazon is where it is today because when it started out there was no thought of keeping one foot in the traditional bookstore market – a brick-and-mortar store. Amazon created their native Web app for e-commerce and unlike Barnes & Noble, did not try and keep a stake in actual stores.

Mobile only photos

Similarly, Instagram rode the wave of mobile-only apps, a tech that only arrived 10 years ago. There were mobile apps prior to that, that were modeled on websites, and Flickr was the dominant photo site in the beginning. They created a mobile app for themselves but still was geared to you going to your computer and uploading photos.

Instagram changed the paradigm however and created a mobile-only photo app that did not even have a webpage – something unheard of at the time.

The native Blockchain business?

It is hard to even say what the defining Blockchain business that sparks a revolution will look like. There are more and more ICOs and companies trying to be the genre-defining one, especially with the use of Ethereum and smart contracts, but up until now, nothing is gaining big enough traction to be noticeable.

That is not to say that the Blockchain-only native business has not yet been created; time may be the factors keeping it back.

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First Iteration of Ethereum Metropolis Hard Fork to Appear Monday

The Ethereum Foundation and other developers in the open source development community of Ethereum are ready to roll out the first iteration the Metropolis hard fork proposal by next week.

According to Jordan Daniell of ETHNews, the Metropolis hard fork is set to be executed in two separate phases. The first iteration of the Metropolis hard fork is called the Byzantine hard fork, a solution that is expected to minimize the actions of bad actors within the Ethereum ecosystem. The Byzantine hard fork will be integrated into Ethereum’s testnet on block number 1,700,000, which could be as early as Sept. 18.

In previous interviews with Cointelegraph, Ethereum co-founder Vitalik Buterin emphasized the necessity of a network improvement and the execution of a hard fork in order to provide a more efficient, secure and robust infrastructure for decentralized applications (dapps) and developers.

Need for more robust protocol

Over the past 12 months, an increasing number of multi-billion dollar financial institutions, Fortune 500 conglomerates and dapp developers have entered the Ethereum ecosystem through various consortia such as the Enterprise Ethereum Alliance. Companies like JPMorgan, Microsoft, Intel and BBVA are actively developing applications on top of the Ethereum protocol to automate their operations and develop new infrastructures based on the immutable Blockchain network of Ethereum.

For the Ethereum network to support all of the incoming large-scale dapps in the near future, especially many dapps that are set to be commercialized and implemented to larger platforms, developers will require a more robust protocol to work with.

As Buterin previously explained:

“The applications are there. See: UN world food program, identity, supply chain, prediction markets, decentralized Reddit/Twitter, mesh nets. All are on backburner now precisely because scalability is not there. I personally have cut down evangelism precisely because I see that the main bottleneck is now not interest, but tech.”

Although only the Byzantine hard fork will be tested on Ethereum’s testnet in early next week, a successful testing process of the Byzantine hard fork will allow the Ethereum Foundation and its developers to streamline the integration of the second phase of the Metropolis hard fork. Once the Metropolis hard fork is completed, it would allow most of the decentralized applications Buterin mentioned in the statement above to be commercialized and to be launched in a scalable and efficient ecosystem.

Major step

In an interview with Cointelegraph in April, Buterin noted that the Ethereum Foundation will continue to improve the core protocol of Ethereum. Once more companies and users develop and explore additional use cases, then the scalability and flexibility of the EThereum network would allow large Blockchain applications to be tested in various industries.

“There are a few perspectives. First of all, we will keep developing the technology and solving pressing challenges, some of them we already started working on, but there is still a lot to be done, including scaling, confidentiality, security issues. These issues need to be solved to ensure further development of the protocol and the whole ecosystem. Besides, we are focusing on the expansion of the system – to make sure that more projects are building on top of Ethereum, more companies and users working with the platform, exploring new use cases,” said Buterin.

Many experts including Coinbase co-founder Fred Ehrsam stated that scalability is a major issue for Ethereum if it intends to support large decentralized applications with millions of users. Metropolis is a major step towards scaling the Ethereum network efficiently.