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The Most Important Scarce Resource is Legitimacy


There are a few key difficulties in managing a blockchain, yet the most scarce and costly resource continues to be legitimacy and security. Both Bitcoin and Ethereum pay out tens of millions of dollars per day for miners and block rewards. A logical option would be to reallocate a portion of the less efficient mining work to tasks like research and protocol development (where marginal gain would be much higher) - yet, like many things, the greatest fear is the response and potential political chaos that could arise. The crypto ecosystem consists of trillions of dollars in circulation, yet the allocation the capital is a fragile game. Within the realms of NFT’s, trust is created through the greater community definition of trust. Vitalik gives the example of selling an NFT: Elon Musk selling an NFT of his own tweet would garner much more trust and profit than if someone else had. Both are legitimate tokens, yet one carries the social conception of legitimacy.

Legitimacy is built through coordination and trust, as well as some social concept of proof of work. Countries, currencies, schools, and companies work through a process of legitimacy, yet the proof of work differs (proof of work for a CEO is his/her time within the company or leading another reputable brand, proof of work for a student at a top school is usually his/her work done beforehand to warrant an acceptance). The whole idea and value of currency is derived through this legitimacy, where the network is only as powerful as the belief in the token itself. Ethereum has opened the door to a platform of applications across domains, but at some point we may ask how we can push new efforts in supporting public goods and services. The decentralization of cryptocurrency creates its value, yet strips away the ability for large centralization of public resources that can better enforce applications for the public good.
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