Our team is now working on the LikeCoin (https://like.co) project, and that makes me think of one elementary economics phenomenon: "what is the value of a token, or a unit of the fiat-currency?". It is really something about economics ABC. My partner refer some passage for me to read about this question, and one of them catch my attention, about the Quantitative Theory of Money, a well known theory in macro-economics.

Here is what I have concluded: the value of a token, or that of a basic unit of the fiat currency, is sorely reflected by the real economic value that can be exchanged by this money. If the value of USD 10 is equal to a bowl of noodles now, but may not be the same after 10 years later. Assuming that inflation is an expected phenomenon then the dollar actually worth less as time goes by, the purchasing power of each dollar decrease. The bowl of noodles in the above example, is the real economic value, that does not change no matter what the price of a dollar is.

So for the value of LikeCoin, its value is determined by the economic value of the "creative work". Each creative work worths, that's the belief behind.

Let's illustrate the idea of the token evaluation by a story. Note that the types of good and the number of peoples involved are all simplified, and the most important simplification is that there is not a place for a "bank", which provide the elasticity to money in the real world. It is quite similar to the crypto-currency world, however, but not in the real world.

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[Background]

A had two bottle of milk
B had 4 apples

A and B could produce milk and apples by their living skill continuously, and they needed both kind of food for living. They agreed to exchange the good at a fixed rate of 1 bottle of milk = 2 apples.

[Scenario]

Since A and B both felt inconvenient to carry physical goods for trading, they agreed to use 20 unique pieces of shell for good exchange instead. Their agreement was:

1 apple = 2 pieces of shell
1 bottle of milk = 4 pieces of shell

So they started to trade the food with these shells. As A and B produced and consumed the food in a steady rate, the shells just flew continuously between their hands. One day a foreigner, C, came to the village. The foreigner wanted to have the food, but he did not have any shell; he had 3 dolls on hand, however. So C sold all three dolls to A and B, with 3 pieces of shell each. So C got 9 pieces of shell.

C bought 1 apple and 1 bottle of milk with 6 pieces of shell, kept the remaining 3, then left the village and never came back again. A and B had 17 shells for exchange now, and sometimes that is not enough for use so they made a decision: from now on, 1 apple = 1 shell, and 1 bottle of milk = 2 shells.

The value of each shell hence rised for a double, as the purchasing power of a shell rise for a double.

So another day, another foreigner, D, came to the village. He really love the apples and milk produced in the village, and wanted to have the food as well, but he got no shell, just USD 100. Hence he talked to A and B:

"Let's exchange 10 shells with 50 dollars, as I can purchase 20 apples by 50 dollars in my country. Your apples looks better, so a better offer for you." Seems that D liked A's apples a lot.

A and B thought that the USD may be useful to them as they go to the States in the future, so they agree with the deal: USD 50 = 10 shells. D then use 7 shells to buy 3 apples and 2 bottles of milk, consumed, and the go back to the States. At that moment there are only 14 shells circulating in the village

And hence A and B believed that a shell costs USD 5.

And somedays later, D and his friend, E, came to the village together. E loves the 3 dolls that was sold to A by C previously, and he wanted to buy them from A. A thought:"Well, these dolls are special. They cannot be produce by our own, they are unique. We ought to sell them at a higher price." A turns to E and said, "They costs 5 shells per doll, totally 15 shells for 3 dolls."

"I have USD only," said E. "How much should I pay for 15 shells?"

"Your friend, D, used to buy the shell from me at 5 dollars each. Let's stick to the same rate."

"Well said, let's make it." said E. E is about to make the payment, however, A stopped him.

"I am sorry, but we do not have enough shells for you. We have got only 14 shells now. Can you buy 2 dolls only?"

"No, I need all 3." said E. "I have 3 daughters, each of them need a present."

Standing besides, D talk to E with smile, "I have 3 spare shells and I can sell one of them to you. However, I love them so much and I must offer you at a higher price, say, USD 10 per shell. Do you want it?"

E loves those dolls very much. He bought one shell from D and bought 14 shells from A&B, with totally USD 130. Then he paid 15 shells to A&B and got the 3 dolls.

So the last transaction is: 1 shell = 10 USD.

Imagine: the shell = the token. Get what I mean?

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