Source: bankless
This opinion piece was written by Diario, Co-Founder and Chief Operating Officer of NFT Price Floor.
Hard power vs. soft power
Most analysis of why Layer 1 blockchains are better than other blockchains and make them ideal investments usually focus on the technical aspects. These analyzes often describe innovative and breakthrough technical features that can solve all the problems and challenges of public blockchains since their inception.
While technology is critical and continued improvements and discoveries in consensus design, cryptography, and decentralized systems engineering (hard power) are essential in order to make this technology accessible to everyone around the world, it is important to remember , blockchain is more than just technology.
In fact, blockchain relies on the trust (attention) of a community that is rooted in shared values, culture, and, in the best cases, a universally accessible ethos. They provide everyone with the opportunity to participate in an open, optimistic history that is both recorded in the block and recognized by the community. This is what we call the soft power of blockchain.
Image source: 0xDesigner
Blockchain is the ultimate coordination tool and the ultimate ledger for humanity to record its digital existence and history. Blockchain is technology, but it is much more than technology. If you judge them solely by technical criteria, evaluating only their technical characteristics and ignoring their soft power, you will miss the bigger picture.
About history, writing, and accounting
As Yuval Noah Harari explains in A Brief History of Mankind, humans were able to dominate the world because of their ability to cooperate in large numbers of people, thanks to our unique ability to believe stories that exist purely in our imaginations .
Those stories based on a common belief system, those cultural artifacts that document different aspects of human existence, when combined and recorded, form history.
So how do we record history? Through writing.
Source: bankless
So on the one hand, we can define history as the sum of shared stories about which human communities agree on their importance and validity. On the other hand, history and writing are closely linked, since there can be no real history without a system of records.
Plus a piece of the puzzle. The world's earliest writing, cuneiform, originated from an ancient accounting system that used clay tokens to track commodities such as livestock and grain in early agricultural societies. Initially, these tokens represented various commodities, with different shapes representing different items or quantities, such as a cone representing a small amount of barley.
Around 3,500 BC, as cities emerged and economies became more complex, the assortment of tokens expanded to around 300 different shapes to cover a wider range of goods produced in urban areas. Interestingly, the final impetus for the development of writing came from Mesopotamian society's shared belief in the afterlife.
History, shared beliefs, systems of record, accounting mechanisms, tokens... do these concepts sound familiar to you, Anonymous?
Money and Monetaryness as Shared Beliefs
According to Harari, humans' ability to coordinate on large scales stems from our unique ability to believe in things that exist purely in the imagination, such as gods, nations, currencies, and laws.
In other words, vast systems of cooperation like religions, trade networks, and political institutions are the result of humanity's unique capacity for fiction.
In this framework, money relies on shared beliefs as long as it exists as a system of mutual trust. From this perspective, Harari's argument is directly relevant to the theory of subjective value. This theory holds that the value of any good is determined not by its inherent properties, nor by the cumulative value of the components or labor required to produce or manufacture it, but by the person or entity who purchases or sells the item.
Based on this concept, the value of an item can rise significantly from the time of its creation because it becomes more valuable or attractive in certain cultural contexts. Many factors can influence this change, such as age, personal sentiment, rarity, etc. In short, it’s cultural relevance.
But why does all this matter?
The Subjective Theory of Value (STV) helps us understand all stores of value employed throughout human history, such as salt, livestock, shells, gold, and crypto-assets such as Bitcoin and Ethereum.
However, only by understanding Harari’s argument about the critical role that shared beliefs have played in human history can we truly understand the full power of STV and how it operates.
Like human history, successful currencies and stores of value are not just the product of initial shared beliefs, they are networked products that require constant attention!
Source: bankless
Some people would say that without money there is no fun. In the case of blockchain, you're better off making sure your favorite Layer1 has a store of value as a native asset before claiming it's superior to its peers. If it's not a good currency, it won't have good economic security. This is inevitable.
How do you ensure that your local assets truly become a store of value and not just a blip? The answer lies in history and cultural vitality.
Blockchain as a digital historical ledger
Remember, public blockchains like Ethereum and Bitcoin are shared, decentralized, immutable, and censorship-resistant ledgers used to record transactions and track assets.
In other words, once information is recorded on the blockchain, it is difficult to change or delete it. This feature is particularly important when preserving historical records, as it ensures the authenticity of documents or transactions on the chain.
We highly appreciate this ingenious system for managing transactions and balances without trust. But what about actual recorded history? Isn’t it just as important as the underlying technology?
In my opinion, absolutely.
Ethereum's native asset, Ethereum, derives its value from its cryptoeconomic properties according to the rules set by the protocol. However, as we have already pointed out, all this will be meaningless without a committed and large community that sees the value of using the Internet and storing wealth in local assets.
The community's shared belief in the value of the network has formed a rich economic history recorded on the Ethereum blockchain as a public ledger. It is this rich history and shared culture of the community that creates a positive feedback loop that continues to enhance the value of Ethereum.
History is nothing but the sum of shared stories that are significant to a community and for which there is social consensus on their importance.
In the case of blockchains, their history reflects the social and economic relationships among members of their community.
These relationships should be evaluated not only quantitatively, but also qualitatively, as a reflection of the culture behind them:
Is it fair to compare the creation of CryptoPunks and the secondary effects it brought (leading to the growth of an entire industry) to the release of a low-investment NFT collectible (leading to a temporary frenzy)?
Can we compare the impact of Uniswap and other 0-to-1 DeFi breakouts to simple 1-to-N protocols that offer incremental improvements that sometimes seem to be just an excuse to sell tokens?
So while it can be said that all Layer1 has its own history recorded in blocks, unfortunately not all blockchain histories are created equal in terms of their impact on their respective local assets (especially on accumulating value in the long term and the ability to be a store of value) are also different.
Zoom in
The value of an L1 as a coordination tool and decentralized ledger lies in the ability to build economic systems and multiple communities on it. However, not all blockchains are created equal. Attributes such as decentralization, anti-censorship, and trustlessness started as technical features but eventually evolved into core values (belief systems/shared narratives) that bring the community together.
Without a strong belief in these values and ethos, and without a vibrant and creative community choosing blockchain as the project’s home and repository of wealth, it would be impossible to develop a rich and lasting history. This shared history will attract new members and help the network grow. It is this history that provides the asset with the intangible but vital support: the trust and continued interest of the community.
Take Ethereum as an example: imagine if Vitalik had not launched Ethereum through an ICO and established a foundation to manage it, what would its value be like? What if he hadn’t implemented a proof-of-work phase to prevent excessive token concentration? What if he acted dishonestly and failed to prioritize the best interests of the network? What if Ethereum had not been chosen as the primary platform by Larva Labs, Hayden Adams, and many other founders?
Ethereum’s community and history will be completely different. Technology is not a major issue as it is upgradable, even if challenged by technical debt. However, history is irreplaceable, irreplaceable and indelible. Only through a rich and enduring history can blockchain’s native assets truly command a premium!
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "Deep Wave TechFlow"
Original author: Guest Author
