The Price of Pi — 4 Reasons Pi Could Be Worth A Lot Of Money
Pi (minepi.com) is a brand new cryptocurrency which you can mine on your phone. This is a huge technological leap compared to established cryptos such as Bitcoin, Dogecoin and Ethereum. As of writing, Pi has not yet reached Phase 3 of development, what’s called ‘mainnet’, and so it can’t be traded, bought or sold. In other words, the value of the Pi Network is currently nothing. However, given how much the original cryptocurrency Bitcoin is now worth, there are lots of people trying to predict what the value of Pi will be when it finally hits the market. But a more fundamental question to ask is why will it be worth anything at all? After all, right now Pi is just a phone app. This is the first question I had when I encountered Pi, and I hope in this article I can share with you what I’ve learned since then, and why I believe there’s a chance that it could be worth an awful lot more than people realise. And if you haven’t heard of Pi before, check out my short guide to Pi first for an introduction to the world’s fastest growing cryptocurrency.
The fundamentals of money
Before we can look at how and why cryptocurrencies are worth real money, we need to go back to basics. We need to understand why the money we use day-to-day, be it the US dollar, the Great British pound, the Euro or another currency, is worth anything.
Money is, in essence, anything that is generally accepted as a payment for goods and services. Money needs to be of value in order to be able to do this. In the 19th and early 20th centuries, most nations based their currency on what is called the gold standard. The gold standard monetary system is where gold is used to determine the value of money, because it is widely held that gold has inherent value and this does not fluctuate very much. In a gold standard system, you could go to the bank that issued the currency that you owned and exchange it directly for the same amount of gold. In effect, money in a gold standard system is simply an I.O.U. for the equivalent amount of gold — and because people see gold as having value, this ensured that money had value.
And I thought FIAT was a car manufacturer
In 1971, for reasons I won’t cover here but you can find in this article, US President Richard Nixon removed the ability to directly convert USD to gold. This in turn removed the ability to convert most other world currencies to gold, as nearly all other currencies were based on the US dollar thanks to the Bretton Woods Agreement. Suddenly, the gold standard was abandoned, and all currencies now became fiat money.
The value of fiat money is not upheld by the value of gold or of any other physical material. Fiat, which comes from the Latin word fiat meaning “let it be done”, is instead a monetary system where the value of money comes directly from a government decree that the money is, in fact, valuable. This is quite a confusing concept, but an answer to this Stackexchange question on the topic explains it very well (credit to user Nai for their answer). First, imagine a mediaeval kingdom…
This kingdom has fertile land and is protected from invaders because of the king’s wise policies. Thus many farmers flock there to enjoy its bounty. However, in return for the use of the land, the king demands a yearly payment that can only be made using pieces of paper with the king’s face stamped on them. The paper is worthless by itself, but because the chance to farm in this kingdom has value and you can’t farm there without some of those papers, the papers gain value. People are willing to trade goods in exchange for these papers because [then they can] take a share of those fertile lands for a year. Indeed they now use the papers among themselves as a unit of value and even ask for it from outsiders — Those who wish to buy goods from those in the fertile kingdom now must obtain the paper its citizens value, which only makes the paper more valuable.
In this example, the papers, which are a kind of fiat money, are valuable because you need them to be able to farm in the fertile kingdom. In extension, fiat money is valuable because of the economy in which that money is used. For example, if you wanted to start a company in Britain or you wanted to sell items to or buy items from British customers, you need to deal in GBP. As the British economy is traditionally a strong economy, in the past this has made the pound more valuable compared to some other currencies. This also explains the drop in the value of the pound since Brexit — in a no-deal Brexit scenario, companies in the UK would lose the ability to sell to or buy from the EU at competitive rates because of tariffs and other charges. This would make the UK economy a less desirable place to do business, and so fears of a no-deal Brexit pushed the price of the pound down. And, in the most extreme scenario, if you woke up tomorrow and Britain had ceased to exist, the value of the pound would become nearly zero — because the economy in which it is used and the government to which it’s value is tied would be gone. In general, the value of fiat money comes from the ecosystem in which that money is used. If that is an ecosystem people want to have access to, the value they see in the ecosystem is reflected in the value of the currency. The more desirable an ecosystem is to be a part of, the more the currency is worth.
Pi Network — the Pi currency ecosystem
The ecosystem within which the Pi currency will be used as the medium for exchange is the Pi Network. If you want to tap into the resources of the Pi Network, you need to deal in Pi, because that is the only currency that is accepted within the network. So, what is it about the Pi Network that would make people want to be part of it? Where does the network’s value come from?
In the Pi White Paper, the Pi Core Team lay out four different methods of capturing value within the Pi Network, which in turn contribute to the value of the Pi currency. These are:
The Pi Trust Graph — As explained in my short guide to Pi, one of Pi’s main innovations compared with other cryptocurrencies is the creation of a trust graph. This trust graph is the intersection of the Security Circles of the members of the Pi Network; in other words, it gives a picture of who trust whom across the entire network. It is a way of scaling trust between individuals across the internet, thus allowing for transactions between strangers without a middleman that wouldn’t otherwise have been possible. The trust graph is a constantly evolving entity that can change at any time when the members of the Pi Network edit their security circles. This means that, if you want to be part of the Pi Network, it is in your best interests to be as honest and open as possible when dealing with people, otherwise you could be removed from the trust graph and soft-locked out of the ecosystem. Knowing who you can trust can be invaluable in today’s society, and so the Pi trust graph will add immense value to the Pi Network and to the Pi currency itself.
Monetising your Attention — It is estimated that we now see somewhere between 6,000 and 10,000 ads a day. All of these adverts clamour for our attention; companies pay huge amounts of money to advertise to us; and when we click an ad, we generate revenue that we never see. That doesn’t feel quite right to me, and part of the vision of the Pi Network is to up-end this unfair dynamic. Pi plans on having an attention marketplace, where companies can vie for your attention but only if they reimburse you with Pi. In the same way that companies pay for ads on television channels, pay for their products to be sponsored on Amazon or pay for Google ads to come top of your search list, the audience provided by the Pi Network will be another resource these companies want to tap into. To do this they will need to spend Pi (which will go directly to the people who watch the ads), thus increasing the value of the currency. And the larger the Pi Network, the larger the audience and therefore the more valuable those ads and the Pi currency will be.
Sell your stuff, straight from the Pi app — Another way to generate value within the Pi Network will be to allow members to set-up their own “virtual storefront” directly within the Pi app. This will create a marketplace where people can sell both physical goods as well as skills and services directly to other Pi Network members, all paid for exclusively in Pi. The addition of the trust graph will add security to this marketplace, because if a trader wants to be able to sell they will naturally need to have a good position in the trust graph. I imagine this will be like the ratings on eBay, except there will not be a huge intermediary making money from the marketplace transactions. Instead, the ‘rating’ of a store will be captured in the native trust layer that is the trust graph. And just like with eBay, Amazon and any online marketplace, the larger it is and the more widely it is used, the more valuable it will be for people to have a stake in it. Which, in turn, will increase the value of Pi.
A new Dapp store — The Pi Network and blockchain will also allow the development of decentralised applications, or Dapps. A Dapp is an application that runs on a distributed computer system rather than on a single server like a traditional applications. For Pi and other cryptocurrencies, Dapps piggyback the computing power that is used to update the blockchain or distributed ledger that contains a record of all transactions of that crypto. The Pi Network will allow developers to write decentralised applications that tap directly into an already established community. This Dapp store is another way to add value to the Pi Network, as it will turn the network into a cross-platform (meaning it will run on both Apple iOS and Google Android) app ecosystem that companies and developers will want access to. As always, the larger the network, the more valuable it will be for developers to have access to it, and the more valuable Pi will be as a result.
The question of why cryptocurrencies are actually worth anything is definitely a bit of a headache for those who aren’t invested in the technology. Bitcoin, for example, has value purely based on the fact that is was the very first cryptocurrency and investors saw potential in it. There is no ‘value-added’ to the Bitcoin ecosystem apart from that. But with Pi, there is real and tangible value in having a huge network of people to tap into, which is backed by the Pi trust graph to ensure that everyone plays fair. If you want to be part of this economic revolution and capture some of the value of Pi for yourself, you can start mining for free by going to minepi.com/TheHilbo and using the referral code ‘TheHilbo’.