Blockchains and network effects

Blockchains and network effects

An insight that is important in relation to recent talks about hard forks:

Blockchain creates a shared view of one history (or reality) among the participants who enforce the same set of rules.

Also, with the recent talks about scammy ICOs and whitepaper-backed shitcoins, remember Metcalfe’s and Reed’s laws (the value of network is either proportional to n^2 or 2^n, n being the number of nodes in the network. The difference is that Reed’s law includes groups of people who make connections among themselves, simply put, for more info see Wikipedia).

Regarding the ETC and ETH fork a while back, after the fork, the combined value of both tokens was higher than original Ethereum alone.

It was a new set of rules, but keeping the same network (which has at least n^2 value). The n really did not transfer 100%, there are some people (like me), who woke up a few months after and sold their ETC they didn’t even know they had and that was the end of the story for them.

But with coming Bitcoin hard forks that can add utility and even the new coins that want to keep network effect (essentially copying account balances at one particular point in time and letting users access the new network using their old keys), you create something of more value than simply ICOs.

You copy part of the network’s value

You may add utility and it might convince some part of the network to just come over and play over at your playground.

Imagine someone creating a scalable, anonymous (Mimble Wimble or Monero-based for example), quantum-computer resistant (yes, the claiming of old account balances would need to be time limited and occur before quantum-computer, because the key to claiming is not qc-resistant) currency that lets you keep your Bitcoin (or ETH, or Monero, or whatever) balance.

Hell, you could even create a super-currency that combines the networks of several currencies (for example in proportion to their market value at a particular point of time).

Of course the result is heavily fat tailed, but at least it is not a pure black swan (it happened already with ETH/ETC), although things will very probably happen differently next time.

As long as the new group agrees on new rules, they create a new reality, but they can keep the hard earnings of creating a network. It should be like this in real life too.

P.S.: Do the hard forks already, all of them, segwit, unlimited without segwit, unlimited with segwit, 8MB, … We’ll see what happens. I’m putting my popcorn in the microwave.

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Written by Juraj Bednár //