mechanism like Ethereum’s GAS; by way of various scaling solutions like off-chain transaction processing; and/or by emphasising transaction fees rather than block rewards in rewarding the mining network. The effect of something like Layer 2 transaction processing is to massively increase V (and reduce M) for the payment component of the sum-of-parts valuation of a cryptoasset. Blockchain payments will in fact be worth (to token-holders) much less than their centralised counterparts like Visa, Apple/Google Pay and PayPal are worth today. It is incorrect to think that because a cryptoasset serves as a payment rail, owners of the token in the system would own something comparable to the enterprise value of, say, Visa divided by the number of tokens issued. Rather, at mature equilibrium, the network value of such a token would be M = PQ/V where PQ is just the aggregate cost of the computing resources to run the chain (which may be thought of as the annual IT budget of an equivalent-volume incumbent payment system multiplied by some coefficient to adjust for the relative computing inefficiency of decentralised vs. centralised architectures) and V is of course some (probably high) velocity. The value implied by the correct valuation framework of M = PQ/V is much, much lower than the enterprise value of the incumbents. Blockchain payments may disrupt and displace the incumbents to the enormous benefit of users, but the value of these protocols as expressed through their tokens will be much less than the value of the disrupted enterprises. An additional factor to consider is the extent to which companies and individuals choose to keep an inventory of payment tokens as working capital on their balance sheets. The question is how strong this working capital driver will actually be. Companies and individuals hold very little physical cash. To the extent they hold cash-equivalents as a buffer against uncertainty, they hold it in the same currency in which they incur expenses, which will play to the advantage of sovereign digital currencies and incumbent payment systems unless retailers and suppliers begin to reprice directly in cryptocurrency units on a large scale. Except for users who make lots of international payments, who are primarily engaged in international or commodity-based trade or who operate in economies with weak domestic currencies, it may not make a lot of sense to maintain a significant stock of a non-sovereign- denominated payment rail cryptocurrency. In a crypto-native world, moving from one cryptoasset to another (for example from a store-of-value cryptoasset to a means-of-payment cryptoasset or converting between alternative payment cryptoassets) will be trivial, immediate and frictionless. What would the rationale be for holding an inventory of a given means-of-payment cryptoasset? It’s also worth reflecting on the difference between cash equivalents, such as deposits at a fractional reserve bank, and physical cash, and how that distinction reads over to a cryptoasset. If there is no fractional reserve banking system available for the cryptoasset, users may opt to store their value in yielding fiat-denominated deposits while keeping a low inventory of the payment rail cryptoasset rather than have a large holding of a cryptoasset that doesn’t yield anything, or they may lend their cryptoassets out by buying yielding cryptoasset-denominated bonds and commercial paper.23 Finally, in thinking about the potential value of the payments function of a single non- sovereign cryptocurrency, it’s noteworthy that, while there clearly are network effects in payments (Visa is more useful and worth more as a business than Diners Club because it’s accepted by more merchants and used by more consumers), payments today do appear to be a 23 Note that both of these things increase the money multiplier and effectively decrease the scarcity of the cryptoasset in question. 16