How The Blockchain Takes Network Effects Onto A New Level
https://medium.com/mit-cryptoeconomics-lab/the-blockchain-effect-86bd01006ec2
In the article “The Blockchain Effect: Network Effects without Market Power Costs”, Cathy Berrera discusses that the decentralization of blockchain bolsters network effects to be more effective during diffusion. For a product or service that many use,, the join of new members is often advantageous. However, as we have learned in class, network effects spread slow and are hindered when the network is segmented and divided into clusters. Its slowness in gaining momentum makes network effect inefficient in a traditional network setting. Also, the benefits mat be compromised by it’s flaw in its own infrastructure. Just as that even Facebook itself is an incredibly large network system that connects a majority of people in our country, its effectiveness for a single user can be greatly reduced if the user oneself has few friends. Unlike network system such as Facebook where the users is passive compared to the platform (i.e. they have to obey the centralized platform’s rules), the blockchain network has no central authority — it is the very definition of a democratized system. The shared and immutable ledger of a blockchain system enables the information in it to be open for anyone and everyone to see. The blockchain network is thus immune to be controlled by an individual institution, so everyone in the network can be directly connected and therefore maximizing the benefit of network effects. Since the information barriers are overcome in a blockchain system, the market power and monopoly created by traditional network effects is reduced. According to the author, the big companies thus have no rights in determining prices, so with blockchain, we can “leverage the benefit of network effects without the influence of market power”. This article provides us new insight into how combing the textbook knowledge of a rigid idea and applying it to a new-born industry can drastically booster the potential usage.