1/ Will decentralized networks replace centralized firms as the dominant mode of human organization in the years to come? The answer will have a lot to do with network effects, so below is a big list of the best thinking about network effects and crypto. 👇
2/ For context, this list comes from a research process I was a part of for this article by @kjer which argues that owners of centralized networks have an “extraction imperative” that does not exist in decentralized, tokenized networks. medium.com/public-market/…
3/ First, by way of background, I can’t recommend the Network Effects bible by @JamesCurrier @NFXGuild. In particular, it is helpful at identifying and isolating different categories of network effects. nfx.com/post/network-e…
4/ @andrewchen echoes the idea that ‘network effects’ actually refers to a set of different loops where something gets more valuable as the number of people interacting with it increases.
5/ Network effects are so powerful that they drive their owners towards natural monopolies. In so doing, they allow those companies to exert ‘Market Power’ that allows them to extraction rent in the form of price, data and more. See: medium.com/mit-cryptoecon…
6/ @cdixon visualized the process by which platform monopolies begin to extract rent from their community (as well as compete with once-complementary businesses) as an S-curve in his essay “Why Decentralization Matters” medium.com/@cdixon/why-de…
7/ As @cathybarreraphd points out in her piece above, in cryptoasset networks, there is no exogenous class of owner shareholders - the participants are the owners. This means there is no group with an economic rent “Extraction Imperative” Read it again: medium.com/mit-cryptoecon…
8/ Freed from the rent seeking of centralized network owners, tokenized networks start to take on some interesting properties. In 2016, @FEhrsam explained how the network incentive of getting in early offset the fact that networks get more valuable later.
blog.coinbase.com/app-coins-and-…
blog.coinbase.com/app-coins-and-…
9/ @cdixon again took this point ever farther, calling tokens a ‘breakthrough in open network design,’ and pointing out how they create a means by which to overcome the “Bootstrap Problem” that stalls early network growth. medium.com/@cdixon/crypto…
10/ Building on this work, @mikekarnj wrote about how, in the context of open source blockchains, the primary source of defensibility are the network effects that relate to how invested people are in the community. research.turing.capital/blockchain-moa…
11/ @nicksoman makes an argument that crypto networks have, potentially, an even more powerful growth accelerant than traditional network effects because token holders are rewarded in both the growth in network utility and growth in value. hackernoon.com/the-double-net…
12/ To me, however, the most exciting implication has to do with the very structures of human organization available. In this piece, @NTmoney argues that bitcoin/crypto may herald the “Slow Death Of The Firm” thecontrol.co/the-slow-death…
13/ @MargRev’s @ATabarrok went a step further, arguing that blockchain and tokenization are a way to incentivize the creation of commons where platforms currently dominate. @VitalikButerin mentioned the simple clarity of the argument in a recent podcast marginalrevolution.com/marginalrevolu…
14/ This idea was beautifully fleshed out by @m2jr in his piece “Crypto Commons.” I think his articulation of ‘Governance Markets’ - "a medium for people to be rewarded for enforcing decentralized “governance” at scale" - is particularly important. blog.usejournal.com/crypto-commons…
15/ To me, this idea of blockchains enabling of a new form of shared, scalable commons is a part of the conversation that has, to date, been a bit drowned out by you, know, what money is going to be. We've barely scratched the surface and I'm excited to see it grow.
16/ Still, network effects and money *are* fascinating, too. While it was beyond the scale of the article we were working on, there is some great network effect theory around crypto and the long-term store of value.
17/ @VitalikButerin kicked this off with this 2014 essay, exploring in depth the variety of network effects at work in blockchain and crypto currency systems and concluding that we’re likely to see a dual-currency (non-winner-take-all) reality. blog.ethereum.org/2014/11/20/bit…
18/ @kylesamani built on many of these ideas and argued that not only are network effects and competitive moats misunderstood, but that it is more or less too early for the real powerful network effects to have kicked in. multicoin.capital/2018/05/09/on-…
19/ @pierre_rochard provided a direct counter point to Kyle’s piece, arguing that the network effects battle for SoV is much, much further along than he suggests. medium.com/@pierre_rochar…
20/ Finally, an even more recent piece from @TobiasAHuber argues that, whether or not the ultimate winner is bitcoin, it’s highly likely to be a single winner-take-all / winner-take-most scenario. hackernoon.com/crypto-network…
21/ If you’ve hung in this long, you’re likely to agree that network effects have a fascinating place in our discussions of blockchains and cryptoasset networks. What’s missing from this list? Who else is talking about network effects in crypto?
Another really good thread on the transformation of the firm.
