Virtual Assets To Repeat the Fate of Dotcoms: Only The Strongest Will Rise

A sharp fall in the value of virtual assets last week revived the shadows of the past. Both qualified analysts and idle commentators remembered about the "dotcom bubble", which had swiftly inflated for five years and burst within one day. Even Bloomberg did not avoid this topic. But is it possible to compare these two economic phenomena? And in general, is it permissible to liken them?

Let us give you some background. The phenomenon of dotcoms (came from the extension of .com domain names) arose in the mid-1990s when the very word "Internet" had the magic ability of opening all the doors. The 20th century - from the Titanic to the towers of the World Trade Center - was remembered by the ineradicable progressivism of people. And the World Wide Web was its peak at that time. The one who mentioned IT unconditionally received money for development. At the same time, it was completely unimportant what exactly the entrepreneur was going to do. Neither the material base of the company, the employees and their qualification, the technologies (at that time very few people had an idea about Internet technologies), nor the business model mattered - they were, let us say, "garage" companies. These firms easily went to IPO and collected millions of dollars. According to rough estimates, during the peak period, the dotcom market was estimated at $6.7 trillion.

This was until March 10, 2000. The NASDAQ Composite index exceeded 5132 points. And began to fall down. Just within a year, it decreased fivefold - to 1100 points. Thousands of companies went bankrupt. The bubble burst.

At the moment, the value of virtual assets is also falling. Since the beginning of 2018, the most popular digital coin has lost about 80% of the price. And now some experts like to apply graphics of the past and the present to each other, grumbling: Look, this has already happened!

The graphics are really similar, but one should take his time before making conclusions.

What are the principal differences between dotcoms and numerous projects of virtual values?

Firstly, the projects of digital assets are not so homogeneous. All without exception, dotcoms were enterprises with their own business schemes or without them, but the goal was to gain the fiat profits. But virtual assets are not in the same situation. Some of them can really be perceived as some joint-stock companies. For example, an entire ecosystem with its DLT-registry, a lot of technical solutions, options and applications stands for the second most popular virtual payment unit. In this case, the platform and, to a large extent, the personality of its creator, Vitalik Buterin, is capitalized to a greater degree.

The main digital coin is the final product. Its infrastructure is, of course, evolving and changing but all improvements are of an external nature, not related to the creators.

In other words, in the first case, we are really dealing with a business model, in the second case, more like with a replicable work of art of IT technologies, which has a recognized value. It turns out that on the same stock exchanges, under the same conditions, absolutely different in their institutional nature assets are traded. We can say that different market laws influence them.

The second difference. Dotcoms and projects of virtual values ​​exist in fundamentally different economic models. "Garage" companies are a product of the industrial and innovative economy, the main value of which was production technologies and scientific and technical developments. Digital financial systems live in the economy of the social capital. The significance of this phenomenon can be well illustrated by a simple example. The market value of Samsung is about $773 billion, Apple - about $1 trillion. At the same time, the Korean industrial giant unites at least 23 brands, under which everything is produced, from smartphones to tankers and food products. Apple has only 13 brands, under which exclusively electronic gadgets are produced. At the same time, Samsung sells smartphones by one third more - 308.5 million - pieces against 215.8 million pieces from Apple. And the Korean company has less loss-making brands in percentage terms. So, why is it cheaper? Where have all the tankers, steel mills, and other businesses gone? It's simple. The vast majority of Apple's value is the social capital, the loyalty of fans immersed in the digital reality. They bring billions of dollars to the company, falling for various services. Millions of people live and work in order to buy something new from Apple.

Samsung could be in the same situation if it had not given Google the complete control over its social platform.

Today, the world lives in a different economy, where the love and trust of consumers cost many times more than the most technologically advanced production, the most successful sales, and the most effective exchange schemes. Do virtual assets have social capitalization? Sure, they do.

The third difference is the state of society. The credibility crisis of the fiat money has caused the need for new values. The United States, the European Union, China, and Russia have played so much in geopolitical games that the financial authorities of these countries have stopped noticing or are pretending not to notice the rapidly approaching global economic crisis.

Digital coins are a conditionally independent alternative to the current monetary system.

And, finally, the fourth and the main reason why virtual payment systems will not become the same bubble as the dotcoms in their time. The thing is that the dotcoms themselves were not a bubble. Indeed, the depreciation of garage companies was topical only for the NASDAQ exchange and its traders, but not for the global economy. After the collapse of 2000-2001, only 50% of companies went bankrupt, but the other 50% survived and formed the Internet that we see now. Google, Amazon, and eBay, like many other market giants, once were dotcoms. If today we calculate the total value of existing companies, whose shares collapsed then, and those who started later, but according to the same scheme, it will exceed $6.7 trillion a lot. Simply put, dotcoms have won. But representatives of the traditional economy do not want to admit this.

It is very likely that virtual currency projects will not lose either. Moreover, one can state quite a heretical thought: the more volatile digital coins are today, the better it is for them and for the global market.

Of course, speculation is a problem. But not as serious as it might seem. There are still fewer speculators than honest investors and not scammers will determine the future of digital means of payment. But those masses of people that will enter digital assets "at the bottoms."

All of the aforesaid is not a discovery in the field of economy and doesn't worth the Nobel Prize. Why does the mouthpiece of the traditional economy, the agency Bloomberg, push the panic button? The answer is simple. The new digital economy has rushed into the settled life of the traditional economy, without asking for permission, and is shaking the financial traditions. First of all, we are talking about the United States of America.

"Recently, the mantra of "a failure is not an option" has been loaded into the United States; this thought is a toxic arrogant mistake," - one of the brightest representatives of the new economy the investor Andreas ANTANOPOULOS writes. - In the 1970s, the United States developed a policy of forestry that supported 100% prevention of forest fires; let's call it "fire is not an option." This policy resulted in the systemic fire-fighting operations of small fires and, ultimately, in the emergence of very unbalanced forest ecosystems. Where the fire was not just an option at the moment, but an unavoidable benefit. Our financial system has become very similar to a poorly managed forest, concealing the increasing probability of a systemic and destructive fire. "

It is difficult to quarrel with the expert. All the talks about risks and references to past crises are similar to fighting small fires. But this practice gave rise to a distorted financial system, where 50% of the wealth belongs to 1% of the population. Correction is inevitable, and the emergence of digital assets, independent of monetary authorities, is an integral part of this correction. And Bloomberg is not mistaken; it just guards the interests of the traditional economy.

People all over the world, not just in the suburbs of New York or Boston, want to have the right to happiness. "As Marshall McLuhan said, the world is becoming a big village, - the Russian visionary and venture investor Alexander SHULGIN said in an interview. - Now if you live in a friendly village, then what do you need money for, when you have everything? You will get more happiness if your basic tasks are solved, fears are allayed. That's when you have more time for happiness. Technology is going to this, it makes you free."