The Cryptocurrency Market, Poker, Gaming, and Their Network Effects
The article describes how network effects contribute to the popularity of the cryptocurrency market and the success of some poker products and gaming. The author started the discussion by his firsthand experience of the network effects when he was working for the world’s biggest poker companies and game publishers. The success of a poker product, actually depends more on the number of players already playing, than how good the game itself is. This could be related to the market equilibrium as mentioned in class, that before reaching a tipping point, the fraction of the consumers in the market that are willing to pay for the product will actually converge back to 0, and this is how “one can have an amazing poker product the software of an actual casino but fail as a business”. On the other hand, if the fraction of buyers willing to pay has already surpassed the tipping point, such a fraction will be pushed up and converge to a larger point of equilibrium. Therefore, the business should work on reducing the tipping point, by lowering the price, or increasing the initial fraction of buyers willing to pay, by “providing strong incentives for early players and potentially bringing in ‘house players’ to get the games going”.
The article also mentions how marketplaces are the ultimate network effect-dependent product, especially for the cryptocurrency market, where liquidity matters a lot. As per new entity joining the cryptocurrency market, it “creates value by introducing more opportunities for interaction to other ‘players,’ further fueling the blockchain economy”. That explains the reason behind the network effects, and relates closely to the concept of externality brought by network effects as mentioned in class, in such a way that if more people buy and use the good, then it’s worth more to others. One new person joining the crypto ecosystem leads to a positive feedback loop that expands exponentially as more people join, and that creates the miracle of an almost 700% increase in the crypto’s total market cap in a year. This vividly describes how the network effects play a role in our real-life economy, that how the fraction of market buying the good is quickly pushed up and converges to the larger point of equilibrium. The backward pushing trend is far from now, but probably in the long-term future, when the cryptocurrency market reached the larger but unstable equilibrium point, when maybe the majority of people in the world are trading on cryptocurrency, the market could be pushed down and converge backwards.
Source: https://dailyhodl.com/2021/11/16/the-cryptocurrency-market-poker-gaming-and-their-network-effects/