In the 1980s, Robert Metcalfe, the inventor of Ethernet, proposed a formula:

“The value of a telecommunications network is is proportional to the square of the number of connected users of the system (n²).”

Since its inception, “Metcalfe’s Law” (M) as it is now known, has become an influential formula for studying network effects and valuing online networks.

Valuation methodologies have historically lagged behind the development of the assets they represent. While the Dutch East India Company became the first entity to sell stocks on a public exchange in the early 1600s, it was not until the 20th century that a comprehensive framework for deriving the fundamental value of equity securities was developed. What Graham and Dodd benefited from in 1934 that their predecessors perhaps lacked was a broadly-accepted philosophy of disclosure (eventually codified in the Securities Act of 1933) and, more importantly, a reliable accounting system with unified measurement standards and practices—a common language for discussing value. Without rules of disclosure and requisite accounting conventions, current attempts at studying cryptoasset fundamentals will descend into the Confusion of Confusions that described seventeenth century stock market investment advice.

Digital blockchain networks have been around for nearly a decade. Digital contracts and cryptocurrency transactions between users on a blockchains, for instance, result in a de-facto network of those users connected in digital space. Due to the fact that these networks are online and published on public ledgers, the blockchain, data on the network is more readily available than most prior networks. This allows us to analyze these networks in unprecedented ways, and derive macro-mathematical relationships or models between entities on the network.

Recently, an increasing number of crypto market participants and observers have become interested in a framework for valuing cryptoassets. Over the years many a dinosaur has proclaimed bitcoin valueless, an asset worse than tulips (at least with tulips you got a flower). Now they’re trying to figure out how valuable these assets really are. That’s a big win for the magic internet money community.