The shelf life of digital assets
Driving in the morning while zoning out, when zoning out, my mind goes blank, and I let my thoughts drift.
This led from thinking about driving to thinking about changing cars, and from changing cars to realizing that the actual cost of buying a car should be much higher than the price paid at the time of purchase. The reason, of course, is the reverse application of the cash flow discount model in the valuation of financial assets.
The discounted cash flow model states that the money earned next year should be discounted to its present value, and the money earned the year after next should be discounted even more to its present value, ... the longer the time, the lower the discounted value.
Thus, a convergent sequence is obtained. By summing this sequence, a finite value can be obtained. This is the valuation of the asset. The consumption issue is the opposite. If you spend 300,000 to buy a car a year ago and need to replace it after ten years, it simply averages out to an annual cost of 30,000 for buying the car.
However, this issue is not as simple as it appears on the surface. The 30,000 yuan from ten years ago may have a drastically different purchasing power compared to today's 30,000 yuan. Assuming the average annual inflation rate over the past ten years is 5%, it would be equivalent to:
In the first year, spent 30,000 yuan. In the second year, spent 3 * (1 + 5%) = 31,500 yuan.
In the third year, it cost 3 * (1 + 5%)^2 = 33,000 yuan. In the fourth year, it cost 3 * (1 + 5%)^3 = 34,700 yuan. ...... In the tenth year, it cost 3 * (1 + 5%)^10 = 48,900 yuan.
By substituting into the formula for the sum of a geometric series, we can see that the total expenditure over ten years is: S10 = 3 * (1 - 1.05^10)/(1 - 1.05) = 377,300 yuan.
This figure is slightly lower than another common estimation method people use, which directly assesses how much 300,000 yuan from ten years ago would be worth today, 30 * 1.05^10 = 488,700 yuan.
The problem is that re-evaluating the 300,000 from ten years ago has little practical significance. The demand for driving ten years ago meant that it was impossible to invest the money elsewhere to hedge against inflation and achieve an increase to 488,700 yuan ten years later.
However, if this is an interest-free installment plan, compared to paying 300,000 yuan in one lump sum, assuming the car buyer can sign a ten-year repayment contract, they would only need to pay 30,000 yuan each year. Thus, they wouldn't need to sell off their anti-inflation digital assets (such as BTC) in one go, but rather convert a small amount each year to pay the installment, which could ultimately lead to a better financial outcome.
Please be aware that there is a very easy area to misunderstand here. It is mentioned that the car buyer has sufficient liquid assets in hand but deliberately chooses not to make a full payment at once for the purpose of financial planning.
This is completely different from many people who clearly have no money yet insist on buying luxury cars and mansions beyond their means through installment payments or even loans. These are two entirely different operations and should not be confused! Installments are merely a financial tool.
Different usages lead to vastly different effects. It's like a kitchen knife; some can use it to create a wonderful meal, while others only end up cutting their own fingers. The most critical difference in the above example is that the former's assets are inflation-resistant and will outpace inflation over time; whereas the latter can only rely on future expected wage income for repayment, and their wage increases are often suppressed by inflation.
The inflation rate alone is not enough to reveal the truth. Perhaps we should look at the growth rate of the broad money supply in society. Over the past 20 years, our broad money growth rate has basically been over 10% per year. By replacing the 5% in the above formula with 10%, we can obtain another figure: S10(M2) = 3 * (1 - 1.1^10)/(1 - 1.1) = 478,100 yuan. Direct assessment gives us 30 * 1.1^10 = 778,100 yuan.
Goodness. That is to say, if the asset you held ten years ago was for the purpose of preserving and increasing value (like real estate), and the current market price hasn’t increased by 1.6 times compared to ten years ago, then it would be considered a losing deal.
This means that a house bought for 10 million ten years ago, if sold today for less than 26 million, would be considered a paper loss. And looking around, it seems that housing prices have already returned to the levels of ten years ago? Furthermore, looking at the BTC price in September 2015, it was around less than 250 USD. Today it is 111,000 USD. An increase of 443 times.
The annualized compound growth rate is 84%, far exceeding the broad money growth rate of 10%. This leads us to further think about the shelf life. Generally, we learn that money, as a store of value, has one of the most important abilities compared to other goods: it is not easily perishable. (And the over-issuance of money is precisely a form of decay.) In other words, it can be preserved for a long time, with a long shelf life, and even, compared to the limited lifespan of humans, it is almost infinite.
However, the teaching chain brings to mind another layer of meaning regarding the expiration date. It's not just about food that can spoil and has a shelf life; it's about items with utility value, like cars and houses. Even if they don't break down, better products will emerge to replace the old generation, thus accelerating their obsolescence. Just like the new energy vehicles bought ten years ago, compared to the latest mainstream models released today, they seem like something that should be thrown into the recycling bin.
It suddenly seems clearer why Buffett has been hesitant to touch tech stocks for many years. From a user perspective, the annual updates and frequent new product launches are indeed a very cool and impressive thing. However, from an investment perspective, the constant innovation and rapid obsolescence of old products is simply a disaster.
This means that once the value stored in the old product cannot be successfully transferred to the new product, it will be a catastrophic disaster. From the perspective of storage-of-value (SoV), a blockchain digital token that is keen on continuous hard forks, constant upgrades, and even changes to its core economic model, along with various technologies and flashy narratives being continuously introduced, although often interpreted by the media and KOLs as exciting significant benefits, is difficult to regard as a good thing; rather, it is a bad thing.
On the contrary, it is digital assets like BTC, which are clearly positioned as a new store of value in the digital age. From the very beginning, as Nakamoto said, "once version 0.1 is released, its core design will remain unchanged throughout its entire lifecycle," possessing the super stability of core design against change, that is the most reliable store of value.
Digital assets do not decay like physical objects, but they also have a shelf life. The shelf life of digital assets lies precisely in the length of time they can remain unchanged. Only by remaining unchanged can they have an infinitely long shelf life. The biggest misunderstanding is treating BTC as software. This leads to the misconception that other blockchains, which are easier to improve and introduce cooler features, are better software than BTC.
BTC is not software at all. The greatest value of BTC does not lie in software upgrades or its ability to get better and better. The greatest value of BTC lies precisely in its ability to resist change. The opposite is the movement of the Dao. Those who do not understand this reverse thinking will never be able to understand BTC in their lifetime.
