Economists view technology adoption through the lens of reducing or eliminating inefficiencies: improving outcomes at the micro and aggregate levels. One of the inefficiencies that blockchain will help eliminate is what Catalini and Gans call ‘the cost of networking’: inefficiencies that arise due to the market power of internet giants like Google, Amazon, Facebook and others.
Network effects are a phenomenon whereby the value to the user or consumer of a product or service increases as its user base grows. Facebook, for example, is more compelling to potential users (including Harvard undergraduates) today than it was when it was limited to only Harvard undergraduates; there are more people to connect to, making it a more useful product.
Network effects can only be leveraged if users are able to interact on the same network. So even if the overall market for a networked product is very large, it will have less value if that market is segmented. For example, early on in the telephone industry, even if a friend had a telephone, you would not be able to call them unless the two of you were connected to the same provider. Such fragmentation decreased the value of having a phone.
Economists have long argued that network effects lead to natural monopolies for exactly this reason; the overall value delivered to users will exponentially grow if instead of having competing networks, everyone uses the same one. While it has become apparent that digital platforms such as Facebook and Uber aren’t necessarily monopolies, there is no doubt that increasing returns to scale give these platforms with tremendous market power.
Market power arises when users or customers have few comparable alternative options for sources of the good or service being provided. This gives the seller the ability to raise prices, or in the case of some internet giants to charge transaction fees, compile and sell user data, all as a condition for giving users access to the platform.
Positions of authority on a permissionless blockchain are open for anyone to join and free for anyone to leave. This fact, combined with the fact that open source code is the basis for permissionless production and maintenance, means that if some entity or concentrated group were to gain control of a permissionless blockchain — and/or attempted to draw disproportionate revenue from it — users would have the ability to either initiate a hard fork and replicate the system (including compatibility with past transactions) in order to redistribute power.
Removing market power from digital networks increases the efficiency of those networks, unlocking a great deal of potential economic value. Without market power inefficiencies, ‘the cost of networking’, users and developers of complementary applications are not priced out of the market, leading to more participation and greater network gains.
Conversely, permissionless blockchains have no owner, and even developers cannot expect to indefinitely extract profits from their products following launch. For blockchain startups who may want to raise funds or earn revenues from their creations, this presents a challenge.
m0t0k1ch1.icon 資金を調達したい or 収益を得たい Blockchain スタートアップにとって、これは挑戦である
Initial Coin Offerings (ICOs) introduce one funding solution: developers can collect funds up-front, not by selling equity — because there is no ownership — but by pre-selling access, in the form of tokens, to the platform they are planning to build.