Network Capital: Value of Currency Protocols Bitcoin & SolarCoin Cases in Context

13 Pages Posted: 3 Dec 2018

See all articles by Nick Gogerty

Nick Gogerty

Carbon Finance Labs

Paul Johnson

Columbia Business School; Fordham University - Gabelli School Business; Gabelli Center for Global Investment Analysis

Date Written: October 2018


Progress in economics and finance is based on new understandings of value and risk. The development of theories and tools for measuring value and risk lets us manage economic development for the collective benefit of society. Unfortunately, current economic theories associated with understanding the value and function of currency are limited.

Financial theories of value associated with debt and equity are fairly robust, well examined and falsifiable. These theories generally value capital assets as a claim on future cash flows denominated in a currency unit discounted for the time value of money, inflation expectations, and uncertainty.

Theories associated with currency generally ignore fundamental questions such as why currency has value and fail to examine what function currency provides in an economy. Instead, economists generally explain currency as having three roles, namely (1):

Unit of account
Medium of exchange
Store of value

These are non-falsifiable and not helpful definitions.

We posit that currency acts as a protocol existing not in the objective but in the intersubjective realm. Currency acts as an expectation spread across a transactome of actors. By assessing various currencies through this lens a crude valuation is derived which indicates most protocols have a $1,000-$5,000 per participant value. Research includes 50 of the world's largest currencies, gold, BTC and SolarCoin.

Using the relative capital model we determine currency value to be an emergent network property.

The general thesis is that a currency is a subjective phenomenon that emerges from individuals seeking to optimize their own utility functions. This leads to the use of intermediate trade goods. Eventually these trade goods become used primarily for their level acceptance across a wide spectrum of transactional actors, a transactome.

The best currency paradoxically is the one with the lowest redemption value or traditional utility. This ultimately leads to paper or fiat currency and other information instruments.

Currency as a form of capital has 2 traits as a protocol and a medium of expression. The protocol emerges as the dominant trait with the medium having different utility. Example the USD $ protocol can be expressed in paper, metal or electronic media.

Our findings are that the transactome as measured by the estimated number of accepting participants of a protocol is a useful metric for measuring the effects of currency as an intersubjective phenomenon. Studying $16 trillion of currency assets including 50 fiat currencies, Gold, BTC and SolarCoin leads to a few interesting conclusions.


1. Networks or transactomes of protocols are not bound by nation state boundaries.

2. Currency protocols are born, mature and die. The average currency has a 27 year life.

3.The average emergent M0 value of a currency ranges from $1,000 — $5,000 USD per participant in a transactome when adjusted for GDP.

4. Currency scales to solve the transactional gradients in an economy and is thus a function of the flows and assets found in that economy.

5. Any form of capital can be generalized using the formula P=Max [R, N S] to express the indeterminent nature of capital prior to its transaction. Where P=Price, R=redemption value of a currency, N=Network scale of a transactome and S= a speculative co-efficient equivalent to an epsilon with a mean of 0.

6. Metcalf’s law doesn’t hold for most currency. The network effect is linear at scale and not exponential per node. This assumed to be a function of the limited need for transaction nodes vs. the actual field of potential transactional nodes using a protocol.

Keywords: bitcoin, solarcoin, currency, cryptocurrency, blockchain, economics, macroeconomics, valuation, economic theory

JEL Classification: E03, A13, A14, A20, B22, B25, B41, C02, C18, C52, C58, P10, P51, Z1

Suggested Citation

Gogerty, Nick and Johnson, Paul, Network Capital: Value of Currency Protocols Bitcoin & SolarCoin Cases in Context (October 2018). Columbia Business School Research Paper No. 19-2, Available at SSRN: or

Nick Gogerty (Contact Author)

Carbon Finance Labs ( email )

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Suite #150
Darien, CT 06820
United States


Paul Johnson

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Fordham University - Gabelli School Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

Gabelli Center for Global Investment Analysis ( email )

113 West 60th Street
New York, NY 10023

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