Over the last several years writing about cryptocurrency-related topics, my general thesis has been to stick with the majors and only place small wagers on the speculative stuff. That explains why I started off being negative toward meme coins and other fundamentally flimsy cryptos like Decentraland (CCC:MANA-USD). I really should not have been so quick to pass judgment.
For Decentraland in particular, I highly recommend you read its whitepaper. Whether you invest in it or not is none of my business. As you can see from its chart (below), it’s a highly volatile name prone to extreme swings. Therefore, you must use caution if you’re going to put your money at risk with MANA.
But its whitepaper? It’s brilliant. Featuring an excellent summary using human language, it lets you know what Decentraland is along with its guiding ethos. More importantly, the whitepaper provides a blueprint for how all other cryptos function economically, allowing you to make an informed decision.
Per the blockchain project’s abstract section, the programmers clearly state that “Decentraland is a virtual reality platform” which allows its users to “create, experience, and monetize content and applications.” Further, “Land in Decentraland is permanently owned by the community, giving them full control over their creations. Users claim ownership of virtual land on a blockchain-based ledger of parcels.”
Just from that explanation, alarm bells should go off. Yes, MANA has economic value, commanding a fully diluted market capitalization of over $6 billion at time of writing, that is the market cap if the maximum supply was in circulation. That equates to a price per unit of $3.33. But this valuation is only sustainable so long as people keep pouring money into this digital real estate ecosystem.
But what would fundamentally keep people in this community? If they find a superior alternative, MANA could come crashing down.
Decentraland Says the Quiet Part Out Loud
Here’s the first lesson that Decentraland provides us through its manifesto: blockchain protocols are impressive but they only work within the confines of the established architecture. In other words, you can’t go off-piste and spend your MANA tokens on any other platform, decentralized or not.
Another point that the whitepaper makes is as follows:
People are spending increasingly more time in virtual worlds, for both leisure and work. This occurs predominantly in 2D interfaces such as the web and mobile phones. But a traversable 3D world adds an immersive component as well as adjacency to other content, enabling physical clusters of communities.
Again, it’s an intriguing concept but because of the decentralized nature of Decentraland, there’s nothing to compel folks to stay and engage the network. Since the idea of the blockchain is not copyrightable, anyone can create a better mousetrap and play the role of disrupter. But the kicker is this statement below:
Unlike other virtual worlds and social networks, Decentraland is not controlled by a centralized organization. There is no single agent with the power to modify the rules of the software, contents of land, economics of the currency, or prevent others from accessing the world.
As a concept, decentralization appears holistically wonderful because of its democratization potential. As the MANA whitepaper states, no single agent can prevent others from becoming members of the community. There’s no discrimination in decentralized ecosystems.
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However, in some cases, you actually do want the ability to discriminate. For instance, if you live in a family-oriented community, it’s in everyone’s best interest to deny access to people who have committed certain unspeakable crimes.
You can’t do that with decentralized protocol because such methodologies are not only frictionless but also devoid of established (centralized) moral codes.
Everything Has Its Pros and Cons
My point in mentioning the above is not to criticize Decentraland. For full disclosure, I placed some wagers a while back. My only regret is that I didn’t bet the farm.
Rather, I hope to communicate that everything — including decentralized distributed public ledgers — has pros and cons. Regarding cryptocurrencies, their fundamental value is tied to technologies relevant only within the echo chamber.
Yes, it’s wonderful that I can perform all kinds of functions within the Decentraland ecosystem. But the accrual of land and MANA is only meaningful within Decentraland. Once I leave this virtual world, MANA ceases to have utility.
Obviously, it’s a problem not just for MANA but for every cryptocurrency. Therefore, I would think very carefully before getting too heavily involved with digital assets, no matter what they may be.
On the date of publication, Josh Enomoto held a LONG position in MANA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
