“The Invisible Man Plays the Musical Chair with Digital Assets” | Author: Jonny Frye | The Capital | June 2021
As with digital assets, the saying goes “anything “Can be digitized” is now being fully tested, because your imagination can now be turned into a digital asset. We will explore this alchemy and see what is behind this new digital magic.
…Believe me, there is an invisible statue worth $18,000 in my library. I only bought it after seeing it in an Italian artist gallery. The artist initially wanted US$100,000, but fortunately, he accepted US$18,000. As an invisible statue, you would obviously think that its value is much lower (and close to zero), but witchcraft is that its value is actually close to $100,000.
Use your imagination to sell imaginary sculptures.Salvador Gallo
In the world of digital assets, there are two types, real and fictitious-we will explore the difference between real digital assets and fictional digital assets. The difference between the two defines how they store value when used in direct exchange, and their legal difference. By fully understanding what these assets are, you can define real and imagined values, isolate risks, and determine their inherent uses.
Virtual digital assets
Virtual digital assets can be broadly defined as having no intrinsic, inherent or intuitive value (no 3i value). Generally speaking, the only source of value is external, so only other people believe that value is based solely on their personal feelings about the value of the asset. This makes the value of assets viewed by many people in a very different and broad way (for example: “beauty in the eye of the beholder”). The ability of an asset to be used as a store of value, perceived appreciation, tradability/liquidity, and legal protection of assets are all very subjective. These characteristics lead traders to dream of rampant speculation, uncertain value, and uncertain legal protection. This “tradability” (volatility) ultimately leads to assets that are not suitable for long-term contracts or business. Some examples of these fictitious digital assets now exist in the form of Bitcoin, Ethereum, and Dogecoin.
Decomposing the characteristics of these imaginary digital assets into their components helps us identify their value.First, all these assets are in certain jurisdictions (e.g. England and Wales) Is protected by law due to possession. However, the law cannot enforce ownership rights because there is currently no court that can force the transfer of these assets. There is no central authority or case law that controls ownership. Therefore, this uncertainty raises the question of whether the assets are truly suitable for institutional investors seeking long-term protection of interests and guarantees in the legal jurisdiction in which they operate.
The value of the aforementioned assets has no independent value other than the value that others are willing to pay for it. This has caused drastic fluctuations in their perceived value. Interestingly, some of these virtual digital assets do attract considerable daily trading volume, of which billions of dollars can be traded in just a few days or weeks. There are still challenges in using such virtual digital assets as a payment method in contracts, because the value of such assets in the short to medium term is highly unpredictable. Therefore, the utility value of these assets is very limited, and most of these assets are not backed by any tangible real-world assets, which increases the challenge, and their value may become zero at any time.
In short, virtual digital assets seem to be only suitable for speculative trading. This is not conducive to long-term contracts and even short-term use in daily business.
Mobility and musical chairs
The fountain of youth that maintains the value of these intangible assets is simple. Liquidity is the true and sole core of its value. As long as intangible assets can be traded as another asset at any time, then intangible assets are useful in transactions, and others will give them value. Intangible assets are similar to musical chairs. As long as assets are constantly flowing between people and music is constantly playing, no one believes that he/she is taking even short-term risks. Once the music (liquidity) ceases, only those who hold the “wrong” digital asset will lose.
In short, intangible digital assets can only gain value through their liquidity. Blockchain technology allows them to be converted into digital assets that can be traded. Their value depends on their speed of movement, similar to letting a hula hoop roll around your waist. Once it slows down, it will hit the ground and stop.