Skip to Content
Blockchain

The tricky art (and emerging science) of valuing crypto-assets

Chris Burniske is developing new tools for evaluating the financial performance of crypto-tokens.
April 23, 2018
Jake Belcher

When Chris Burniske began evaluating crypto-assets professionally back in 2014, nobody on Wall Street wanted to talk about Bitcoin and similar systems, insisting that the assets hosted on these networks didn’t have much value. Now that the cryptocurrency market has gotten so big, thanks in large part to initial coin offerings, “the same people who largely have said these assets are worthless are now asking how much are these assets actually worth,” he says.

Answering that question is tricky, and the science is still emerging. A complicating factor is that there are several kinds of crypto-tokens, and while some resemble currencies, some are more like commodities (see “When the cryptocurrency bubble pops, these tokens are built to survive”). But thanks to pioneers like Burniske, financial analysts are starting to get their hands on real tools for determining the underlying value of blockchain networks. On stage at MIT Technology Review’s Business of Blockchain conference, Burniske, who has written a book on the topic, explained his approach to evaluating digital assets and shared some of the insights this approach has already generated.

How much is a given network worth compared with others? The metric that has emerged as the most common way to determine this is called the “network value–to–transactions ratio.” In this case, the network value is simply the number of coins in circulation multiplied by the price. “It’s not a market cap, because it’s not a company,” says Burniske. The network value is then divided by the “transaction value,” or the the dollar value that the underlying blockchain moves in transactions.

Transaction volume, says Burniske, is to crypto-assets what profit earnings are to the traditional equities world: if the stock market uses profit earnings to price shares, then cryptocurrency analysts should use transaction volume in the same way. This general approach to “relative valuation” can also be used to determine other things, he says, like the dollar value that goes into into securing each dollar stored on a given blockchain.

Compared with “relative valuation,” the science of determining the “intrinsic” value of  crypto-tokens is more contentious, says Burniske. He disagrees with people who say crypto-assets do not have intrinsic value, an argument he says fails to account for the new “digital productivity” that blockchains have created. Though metrics are emerging to measure intrinsic value, the science is even less mature than that for determining relative value.

Burniske acknowledges that all of these approaches are an approximation of the truth:. “In this attempt to quantify, I think we will develop better understandings of these crypto-economies.”

Keep Reading

Most Popular

Large language models can do jaw-dropping things. But nobody knows exactly why.

And that's a problem. Figuring it out is one of the biggest scientific puzzles of our time and a crucial step towards controlling more powerful future models.

The problem with plug-in hybrids? Their drivers.

Plug-in hybrids are often sold as a transition to EVs, but new data from Europe shows we’re still underestimating the emissions they produce.

How scientists traced a mysterious covid case back to six toilets

When wastewater surveillance turns into a hunt for a single infected individual, the ethics get tricky.

Google DeepMind’s new generative model makes Super Mario–like games from scratch

Genie learns how to control games by watching hours and hours of video. It could help train next-gen robots too.

Stay connected

Illustration by Rose Wong

Get the latest updates from
MIT Technology Review

Discover special offers, top stories, upcoming events, and more.

Thank you for submitting your email!

Explore more newsletters

It looks like something went wrong.

We’re having trouble saving your preferences. Try refreshing this page and updating them one more time. If you continue to get this message, reach out to us at customer-service@technologyreview.com with a list of newsletters you’d like to receive.