If you are an avid cryptocurrency investor, enthusiast or even a student of the space then you've likely spent time looking at https://coinmarketcap.com/ Maybe you've even stared in awe of the market capitalization of some of the assets and tokens listed there. Traditionally, market capitalization has been a simple number indicating the market value of the outstanding shares of a company. However, I believe the term market capitalization is inaccurate when applied to cryptocurrencies for two reasons.
Cryptocurrencies and tokens are not companies, they are networks.
When you own a "share" you in fact own a limited digital medium of exchange designed for the purpose of transmitting information across its network through cryptography. The type of information exchanged varies by token or currency.
It's important to note that the formula for market cap is found by taking the stock price and multiplying it by the number of shares outstanding. The formula for network value would not change. It would still be broken down as:
Network Value = (# of units) x (value per unit).
I bring this issue to light because investors have used market cap to gauge the growth versus the risk potential of an investment. While I agree that network value could be used in a similar fashion, I believe this term will more properly contextualize the growth vs risk potential of a cryptocurrency investment and provide a necessary differentiation between traditional investments and this new asset class.
Informative article. Thanks for sharing.
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