Synopsis:
The difficulties in measuring value are not only the many technical challenges, but also the subjective nature of evaluation itself. An effort to produce a numeraire of sorts, which could itself be subject to some volatile influence, is likely to defy even basic definition. Some of this subjectivity may be sorted out with use case definitions; however some degree of volatility should be expected to result in efforts to unify those particular use case valuations. Though the prospect of a constant numeraire may be a great expectation, a model for risk management might keep volatility at manageable levels. Of course, based on previous experience, this also may be a great expectation.
Dynamics:
Analysis is of course based in Game Theory. It’s rooted in personal and collective interests; with different levels of normative cooperation. The dynamics are both qualitative and quantitative. They are both subjective and objective. They are also both imposed and consensual. They are an amalgam of individual, group and general collective interests; that are governed by a theoretically universal principle.
Qualitative:
Individual notions of value diverge slightly from popular consensus. The obvious method of study of this is probably Game Theory. Personal interests likely have the greatest influence in personal valuation; and consensus is likely a product of symbiosis.
The consensus on value could be chosen as a rigid definition of value; however the individual notions of value will influence outcomes, and thus need to be accounted for. There doesn’t appear to be a clear, defining line where individual and popular notions of value diverge. There are varying degrees of alignment throughout, in group alignment; that doesn’t have the mass of general consensus.
Solving this problem appears to be improbable with imposed constraints. The expected direction of such a complex, self-organizing system is normative as Game Theory would suggest; and imposed constraints are more likely to impose nonconsensual, individual, influence on the normative, popular consensus. What makes this problem a problem to be solved is the extremely high risk of severe crisis. Severe crisis is consistently observed to result where constraints aligning with group interests are imposed on popular consensus. Game Theory would describe this as exploitation hindering cooperation and resulting in high risk of extinction; and the observed outcomes appear to support it.
This may appear to suggest that valuation of general consensus as the lesser of the three evils is the obvious choice; however there are also qualitative considerations that may oppose this quantitative argument. Extinction is just as much a part of evolutionary advancement as death is a part of the spreading of genes. The consensus of normative influence is universal in theory. This reduces the status of the population of humans and even the added full complement of life on the planet to a group dynamic… in theory. Subjectivity has the unmistakable appearance of a constant.
The evaluations become much more complicated when considering quality vs quantity. This can include but not be limited to products or services sold, years sustained, offspring reared etc, etc.. Some valuations are normative vs qualitative. This tends to be in individual and group dynamics; however again all dynamics can be considered as such, and thus an explanation for extinction being the norm.
Quantitative:
For the purpose of serving trade systems, the value of currency is probably best rooted in the supply and demand based notional value of products and services. This would however be a dynamic, as opposed to a static numeraire; as supply and demand are both naturally volatile and economically notional. Any will for a static numeraire not only seems infeasible, it also appears to be unfavorable.
With the rise of BitCoin, came a new form of currency valuation. It’s a non-fiat currency that is based solely on it’s own notional, supply and demand; that isn’t influenced by the value of products and services. It can be used to trade products and services; however they do not influence it’s notional value. That is determined by the supply and demand of BitCoin itself.
It has no real influence on the economies either. It’s both a currency and a security; that does little more than move money around with a zero sum game. The security side of it requires another platform to function as a traditional security; like other currencies. BitCoin isn’t a traditional security in and of itself. It is just used as such; with the added ability to be exchanged for other less volatile currencies. By exchanging for BitCoin when it’s notional value is rising, and then exchanging for another currency when it is falling, funny money is made. It’s money being made from money; with no investment in products and/or services what so ever. This is something that can be done with any exchangeable currency; however being less volatile, less money would be moved around. These technical considerations are important; because of the technical issues that could result from unwise choices in valuation methods.
In the bigger picture, Game Theory would categorize this as an exploitation in individual and group dynamics. It’s a zero sum game; that moves money around, between individuals and groups, that doesn’t benefit the general economy, in that it doesn’t finance the general economy. In fact, it tends to aggregate wealth away from the general economy; eventually resulting in economic crisis. This is not an effect that emerged with cryptocurrency either. This is cryptocurrency being used in the manner that investors use traditional currency and securities. The fact that BitCoins value is not influenced by the product and service markets isn’t exclusively relevant.
Exploitation:
Liquidity, leverage and market value are measurable with supply and demand as well; however both supply and demand can be fudged, manipulated and even overpowered.
Individual:
Individuals can exploit by misrepresenting value. It’s often a misrepresentation of either or both supply and/or demand. It’s as simple as selling anything; and suggesting that it will increase in value, when demand for it is falling.
Group:
Firms have become quite adept at misrepresenting value. It almost always revolves around misrepresenting supply and/or demand. It’s as simple as being first to a thesis of falling demand for a specific security; and dumping a large portion of that position onto the market, without sharing the thesis.
Systemic:
There is an observation that behaviors that result in some form of advantage for one agent, results in adoption by other agents, in an effort to compete. Whether or not the behaviors are nefarious isn’t necessarily relevant either. Exploitation in individual and group dynamics can, do and will become exploitation in system dynamics. It appears that corruption of systems generally comes from exploits in individual and group dynamics; where adoption is chosen over punishment, because the behavior is difficult to prove or regulate. These behaviors include but are not limited to psychological manipulation in marketing, payola, insider trading, corporate espionage etc. etc… and they all misrepresent or influence supply and/or demand in their exploitative function.
Closing:
For the purpose of economic and financial risk management, valuation being associated with the notional, supply and demand based value of products and services may be the most generally favorable method. Of course, services need to be evaluated by this principle; as they may not in fact be financial services, and only move money around between individuals and firms, while aggregating capital away from product and service markets, and eventually resulting in economic crises. Where as valuation is fraught with ambiguity and uncertainty, it is still extremely difficult to make an argument for the value of that particular phenomena; as it eventually opposes everyone’s interests.