On the surface, The Sandbox (CCC:SAND-USD) appears to be one of the biggest steps taken in the blockchain evolution. Depending on how you define decentralized systems, Sandbox is exactly that — a major breakthrough in “self-intelligent” independent protocols. As a result, many people have poured into the underlying SAND token — and there’s nothing wrong with that provided you understand the risks.
Before we get into the rougher elements of Sandbox — and frankly all cryptocurrencies — it’s only fair to acknowledge the technical merits of the network in question. When the idea of the blockchain first entered the collective consciousness, the primary focus of early decentralized initiatives was to facilitate borderless peer-to-peer (P2P) transactions.
Once that became an established concept, smart contracts entered the arena. To make a long story short, smart contracts are basically executable agreements that operate without legal or jurisdictional authorization; that is, the basis of agreement stems from execution of the contract’s terms as an immutable ledger determines it, not by the authority or force of law. Therefore, smart contracts added utility to the blockchain beyond P2P transactions.
From there, multiple networks (Sandbox being one of them) piggybacked smart contract technology to foster decentralized economies. These work in the same spirit as smart contracts: rather than a centralized government body dictating terms for its economy, a decentralized ecosystem accrues utility (and thus value) directly from its participants. Theoretically, the more participants, the more valuable the network.
With the Sandbox token commanding a market capitalization of $5.84 billion — ranking it two spots outside the top 30 at the time of writing — clearly many SAND participants exist. Given that it specifically powers a decentralized gaming ecosystem under a play-to-earn model, SAND could enjoy a higher trajectory.
But that’s not the only story here.
The Irony of Sandbox (and All Other Cryptos)
While children would view a sandbox as a plaything, scientists regard it also as a high-entropy system. Put another way, a sandbox is literally just that: a squared-off area with a bunch of sand in it. Clumps of sand are chaotic since no apparent order exists. Therefore, sandboxes exist natively in a high-entropy state.
However, a sandbox can also be a work of art. A professional sand artist — I’m not entirely sure what you call these folks — can come in and create majestic structures, indeed an entire sand city. In that circumstance, a sandbox is a low-entropy system. We can clearly see order, structure and while subjective, beauty.
It’s really the same with The Sandbox. Empirically, via its use of blockchain technologies, the SAND network is one of many burgeoning decentralized autonomous organizations (DAOs). As outside observers, we can see a viable gaming community thriving outside the clutches of a centralized governmental authority. Thus, the least-intellectually curious among us have confirmation that DAOs represent a success story — and by golly, it’s time to invest in Sandbox!
Forgive me but drawing such conclusions is akin to never questioning the common childhood thesis that babies come from flying storks.
At issue is not just the mere existence of a low-entropy system but the sustainability of such. For instance, we know that sand-based artwork — unless carefully secured, stored and managed — will invariably become high-entropy systems if left to the random ravages of nature. Therefore, investors should ask the basic question: what sustains the valuation of decentralized networks?
It’s not an exclusively Sandbox question, though you can now appreciate why this label is ironic. No matter how one markets a decentralized network, its value invariably hinges on established, centralized currencies like the U.S. dollar.
Be Happy, Be Aware
Look, before you barrage my inbox with hate mail, let’s have a little thought experiment. If all fiat currencies suddenly disappeared one day, what in the name of a holy deity would Sandbox be worth (or enter any crypto here)?
Seriously, what would it be worth?
Would we not have the same chaotic situation with private currencies in the U.S., a monetary wild west that only the National Bank Act of 1863 curtailed?
Guys (and gals and non-binary persons), I’m pleading with you. I’m not against cryptos in the slightest. But you’ve got to be aware of the huge risks that you’re taking with digital assets, especially at present valuations. Do gamble if you want to but gamble responsibly.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. 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.