About Slicing Pizzas and Forks — Part 1
The day I’ve figured how cryptoeconomics mindset probably works
The mountainous region of my home state is amazingly beautiful. This is true to almost the entire state, but even more true with regard to the region of Bento Gonçalves and Veranópolis.
I try to visit it from time to time, even though I normally need to work while travelling. No matter. The landscapes, the environment, the weather, the people, they are all contagious and make any activity much better.
Altough the infrastructure is pretty decent, while you are travelling on roads inside those montains you shouldn’t expect to have any cellphone signal. This should also be generally no problem generally, as you will be ‘out’ for just about 20–25mins, sometimes not even enough time do make a streaming playlist in Spotify stop.
One day, however, those 20–25 minutes seemed to be hours for me.
It was 1 august 2017 and I asked my girlfriend to drive, because I wanted to keep a second by second update in the so expected Bitcoin hard fork. I wanted to see the live behaviour of the market, the pre and post fork movements.
I was sure that I would be seeing a market cap split that day, that the exact amount of price that Bitcoin would drop will be the price that Bitcoin Cash would carry.
I’ve lost the signal for the regular 20–25 minutes. I was anxious and in vain trying to update the Bitcoin price through my cell phone.
Then a mere 3g signal came up and allowed me to update my price information on Bitcoin. And I could not believe what I was seeing: after the split, out of nowhere, value arose in the cryptocurrency market.
The Problem of Slicing Pizzas and Coins
Some years ago, I saw a funny video where a guy asked a girl about how many pizza slices would she cut her large hawaiian pizza and why: 12 or 8. The girl immediatly answers that she would prefer a 8-slices-pizza, as she wouldn’t be able to eat the additional 4 slices.
The girl just could not understand why the guy is laughing at her answer. For her, it is pretty straightforward: 12 slices are just more than 8 slices. Period.
Jen might be wrong about pizzas, as those additional 4 slices won’t make her pizza bigger. But surprisingly enough, her train of thought is correct when it comes to cryptocurrencies: the more you slice it, the bigger it gets.
How could ‘slicing’ a cryptocurrency would make the market instantly bigger? Something was happening and I was clearly missing it. So I started to think about it and came up with two possible explanations.
Buyers and sellers could be crazy: that was my first intuition.
People would be valuing the coin regardless of anything, as if Bitcoin Cash carried some kind of valuable heritage from Bitcoin. They were separated blockchains, causing confusion and splitting the entire community: where the hell was there value being added?
Well, these facts were my mere opinion. People might be also disagreeing with me at the premises level, altough those were obvious and notorious facts at that time.
If people were considering the benefits of Bitcoin Cash instead of Bitcoin, then the madness was even greater: if people considered the possibility of Bitcoin Cash surpassing Bitcoin, then it was obvious that they would exchange one for the other, being hard to image this movement resulting in any kind of market cap raise.
I had to be neglecting something important. Not that I believed the mass to be always wiser than the individual. But the market cap raise seemed to carry some hidden truth, with a somewhat rational movement behind it.
It took me some days to come up with a rational explanation. And then I figured out something that people (and traditional economists) usually miss: people don’t measure value in the cryptocurrency world as you would in the “regular” world.
Cryptocurrencies carry a different logic behind them, a logic that I should understand if I wanted to have an ability to predict the outcome of moves such as forks.