Since mining of ProtoShares will begin on November 5th, I thought it would be fitting to open a discussion about what the value of a ProtoShare will be and what methods can we use to estimate its value.
For starters I would like to dispense with the notion of a ProtoShare having any value without reference to the total supply of ProtoShares. The real question is what is the value of 100% of all ProtoShares and then deriving the value of a single ProtoShare relative to the supply. This process is very much like pricing the IPO of a new company and estimating the market cap. Generally speaking you want to compare a company to other companies its industry and then adjust the valuation based upon relative competitive advantages each company has.
In the crypto-currency market place you would have to compare ProtoShares to other DACs such as BItcoin, Litecoin, Peercoin, Namecoin, and Primecoin. For a complete list of other players in the market you can visit http://coinmarketcap.com/
A brief overview of the market shows that Feathercoin is worth about $1.7 Million dollars and offers little more than marketing and perhaps checking-point compared to the competition. I feel this is a good baseline value that puts a floor on the value of ProtoShares because ProtoShares has several major competitive advantages over all other altcoins:
1) Entirely new proof of work that is better suited at achieving the goal of Litecoin that Scrypt (which is also used by Feathercoin)
2) ProtoShares comes with a social contract that bakes in the future value of all the features of BitShares
3) BitShares has the potential to provide much more value to the market than Bitcoin.
Now that we have established the baseline value we can compare it to the next contender, Primecoin with a $2 Million dollar market cap. Primecoin has the competitive edge of a proof-of-work that is somewhat socially beneficial and is therefore a good point of comparison as the the only other proof-of-work system aside from SHA256 and Scrypt on the market. If that was all that ProtoShares had to offer then Primecoin would be a good point of comparison.
The next point of comparison is Namecoin valued at $4 million dollars. Namecoin is the first non-currency oriented DAC and as such provides potential utility beyond competing to be the next reserve currency. The mere potential that Namecoin could eventually replace DNS systems is enough to justify its $4 million dollar market cap. This shows that non-currency DACs have a baseline value of around $4 million even in the face of significant weaknesses in the pricing structure of domains and squatting prevention. A crypto-currency that provided the services of Namecoin with a proof-of-work like Scrypt or Primecoin could have more value. I would estimate that such a combination could have a value near $8 million. Unfortunately ProtoShares does not yet implement these potential features and therefore the value must be discounted based upon risk of implementation and time value of money. Even so, the feature set and value proposition of BitShares far exceeds that of Namecoin so it is hard to say what the value could be.
The next major coin is Peercoin which is a combination proof-of-work, proof-of-steak system that is also competing against Bitcoin and Litecoin to be the next generation currency. It is up at $8.4 million dollars despite being a latecomer to the market based solely on its enhanced protection against certain classes of attack. The Momentum proof-of-work might keep mining power decentralized enough to provide similar protections in the eyes of the market.
So far if you compare ProtoShares to existing crypto-currencies there is easily potential justification for a $8 million dollar valuation right out the door. But comparing ProtoShares to other crypto-currencies alone is not looking at the big picture. What is the value of a crypto-currency that can be pegged to gold or silver while remaining decentralized and trustless? What is the value of a way to securely store dollars and receive a positive return on investment without counter-party risk? Well, the investors in Invictus Innovations felt that it was worth investing $600,000 dollars to build the system even with no pre-mining. Without pre-mining the investors in Invictus Innovations are on near-equal footing with everyone else in terms of acquiring BitShares or ProtoShares and therefore that $600,000 investment in a venture that could see only the ability to acquire 1% or less of the BitShare supply could easily be counted as a bid that would value ProtoShares at $60 million dollars. This would put it on par with Litecoin even before the first line of code was written. It is critical to realize that Invictus Innovations doesn't get to spend $600,000 on mining hardware because we have salaries, bounties, and other business expenses to pay with that money which has to fund our company for almost a year. In fact, the investment of $600,000 is spread out over 9 months and therefore our cash flow as a company is limited. In order to have the opportunity to invest in 1% of BitShares someone had to pay to develop it without pre-mining and thus that 1% will cost $600,000 to acquire.
So what is a ProtoShare worth? Eventually it could be worth more than Bitcoin, but starting November 5th the market will get to price ProtoShares and we will soon find out!
What are your thoughts? How much are you investing in mining?