The Rise of the Internet of Value
Societies have denominated value in largely the same way over the past few centuries. The introduction of currency made it easy to measure demand for an item based on how much a person or people were willing to pay for it. However, this system is quickly becoming outdated in an increasingly digital world.
Despite its vital role in society, fiat currency—the money used in everyday transactions—has shown its inability to keeping up with the rapid pace of innovation. Even as cashless payment systems like credit cards, online processors, and point-of-sale systems become popular, paper money remains the main mode of transaction for most of the world.
Paper money is hard to transport, can easily be lost, and the ease with which it’s printed may lead to cases of inflation that can be extremely harmful to societies. Fiat currencies are also subject to unnecessarily long settlement times for transactions. Even so, there has been little effort to replace the current system, until recently. The introduction of cryptocurrencies, and its blockchain-based infrastructure, has led to the start of a shift in this prevailing mentality.
These innovations have led to what some are calling “the Internet of Value”, or the idea that online technologies make it as easy to exchange value or complete transactions as it is to share memes on social media. More importantly, these cryptocurrencies remove the need for purchases to be denominated in fiat, because blockchain is a paperless medium for isolating, denominating and transferring value between users who like the same things.
Cryptocurrencies as Fractionalized Value
The Internet of Value is a relatively new concept, but one that follows previous evolutions of the internet that have added significant functions to civilization. Despite its embrace of technology, financial services that rely on fiat currencies and traditional money are still bogged down by two major problems: centralized systems and the presence of intermediaries who increase settlement times and subtract from the bottom line.
Blockchain-based cryptocurrencies offer a clear alternative to the status quo, providing the foundation for the Internet of Value. This new layer is made up of three major components—the denomination of coins, the ability to pay for services with these coins, and the absence of middlemen. The first component is the basis for a new financial ecosystem. Cryptocurrencies emerged as a more democratic and decentralized alternative to fiat, with Satoshi Nakamoto’s original intent to simplify the transfer of value.
Their role cannot be understated, as their makeup is what sets them apart from fiat currencies such as dollars or Euros. Currencies like bitcoin are fully digital and based on peer-to-peer technology, meaning they don’t require an intermediary to be exchanged in a transaction. Instead, their value is a matter of public record, and all transactions are stored on a shared, decentralized, and immutable ledger.
More importantly, cryptocurrencies simplify the transaction process. Because these store value (there are limited numbers of them available, and they are attainable with fiat money) they can be used to pay for services and goods the same way as fiat. However, the major difference is speed. The addition of intermediaries when transacting in fiat is inevitable. Banks must log payments, processors must verify transactions, clearing houses balance different forms of money, yet all these participants in the process extract value along the chain. It’s like a long road with many toll booths. In cryptocurrency transactions, these intermediaries are non-existent. Peer-to-peer technology is inherent in blockchain’s decentralized design, and means users can easily transfer instantly, as they would a bit of data.
The Internet of Value in Action
These concepts may seem abstract, but blockchain-based companies have been taking advantage of this transactional revolution to create systems that not only store value, but create it as well. The Internet of Value is based on the idea that transmitting money and value should be instantaneous, borderless, and simple.
Take, for instance, Golem, a virtual supercomputer that depends on members’ computers and devices for its processing power. The technology can be used for a variety of reasons including CGI rendering, machine learning, computation, and more, and is built completely by the community. Users gain value by accessing a powerful decentralized supercomputer, while those that share their devices’ processing power are rewarded with tokens, which can be then used within the organization or exchanged for other currencies.
Another excellent example of the Internet of Value in action is HoToKen, which creates a full ecosystem for merchants and consumers to interact directly, and exchange value instantaneously. Businesses can offer discounts and promotions directly to consumers, who can participate in them without having to go through intermediaries like Groupon, RetailMeNot, or LiveSocial. Users can earn tokens and use them to redeem discounts while merchants reap the value of user-driven social momentum. These transactions are not mediated by any part of the system, ensuring the ecosystem’s value remains contained.
Finally, systems like SiaCoin allow users to access encrypted cloud storage, with the only price being a small part of their PC’s memory to contribute to the broader network. Users can pay for storage with tokens and receive them as compensation for sharing memory space. By allowing users to participate without any restrictions, systems like these deliver added value without letting it leak out or be extracted by gatekeepers or other centralized authorities.
Obstacles Remain
Even with the rapid rise in cryptocurrency valuations, there are still obstacles for this nascent Internet of Value. Unlike centralized systems which can be scaled with limited impact, blockchain-based services are reliant on participation. The early internet took time to become global because not enough people were using it, and even fewer knew it existed. In much the same way, blockchain requires participation for services to truly be powerful. In Golem’s case, a supercomputer with limited processing power is not very useful. Similarly, for HoToKen, a marketplace without consumers or merchants is void of value.
Moreover, these systems, while revolutionary, remain very much isolated. One of the last major barriers blockchain needs to overcome is interoperability, or the ability for different services on unique chains to work together. By creating a vibrant and interconnected ecosystem, blockchain, and the cryptocurrencies that sustain it, will continue expanding the Internet of Value for years to come.
Contributor Eran Halevy
