The Network Effect and Cryptocurrencies

An often overlooked aspect of cryptocurrencies is branding. Look at Bitcoin. Bitcoin’s technology lags far behind Litecoin, Stellar, Iota, Nano, and other cryptocurrencies with low or zero fees, faster transaction speeds, interoperability, scalability, and zero computing/electricity waste. However, Bitcoin remains number one. It is for a similar reason that Coke is the number one beverage in the world. Its not because Coke is the best tasting, the healthiest, or the most thirst quenching. Its because of branding and distribution.

Bitcoin was the first major cryptocurrency, therefore, most people know about it, talk about it, use it, and are willing to accept it.

People trust Bitcoin. Its been around for 11 long years. It enjoys the network effect.

The blockchain company I work for, ChronoLogic.Network recently had a talk about whether to join Telegram or Discord to create an online community. The choice was pretty clear. Despite the fact that Discord’s features are better in every aspect, we chose Telegram because everyone in the crypto-community already has the app installed and uses it for communication. Even if Google plus was better, we all still use Facebook because everyone else is on it.

The network effect is very important in currencies. A currency is nothing more than a medium of exchange that a network as agreed to use.

Which is why Cryptos released by networks such as Microsoft, Apple, Amazon, Google, FB, Telegram, and WeChat will become rival global currencies.

The bigger the network, the more valuable the currency. That is why the US dollar is the most valuable currency in the world (in certain terms) despite massive quantitative easing that would normally drive down its value. Its just so darn useful.

If you want to buy oil or do international trade, everyone accepts dollars. The same can’t be said for other currencies.

So when you look at the most highly valued cryptocurrencies, you see Bitcoin at number one, treated as a sort of digital gold. The difficulty in mining it, the built in scarcity at 21 million Bitcoins, even the difficulty in sending it, keeps in it line with a digital store of value. In the same way, gold isn’t extremely liquid. You can’t easily transport bars of gold. However, a lot of people have agreed to use gold as a medium of exchange. And the same thing has happened with Bitcoin…for now.

Ethereum also demonstrates the network effect.

Despite Stellar, EOS, Cardano, and other smart contract platforms having advantages in transaction speed, cost, mining waste, scalability, interoperability, and coding in standard computer languages…Ethereum remains the number one smart contract and ICO platform.

It was the first one and it’s the biggest one. When someone wants to launch an ICO, they usually choose Ethereum because its tried and true. People can trust it. The ecosystem has been created. People know they can go to coinbase and use their debit card to purchase Ethereum and then exchange that Ethereum for an ICO token. There are other platforms, but this is the biggest one.

So when a Fortune 500 company wants to do something using smart contracts, or wants to start a token, they usually choose Ethereum.

The third biggest cryptocurrency is Ripple. Ripple also enjoys the network effect. They were the first cryptocurrency to try to solve the international settlements problem in a big way. They were the first cryptocurrency to try to integrate into the backend of the global financial system through banks. Funded in part by Google Ventures, they continue to gain huge banking partners such as Santander. When a huge bank places its trust in a crypto, other huge banks are also willing to trust them.

But the problem is that Ripple is not fully decentralized.

A lot of the team comes from an old-school financial background, which is helpful to develop institutional partnerships, but not as good for anticipating the evolution of financial consciousness.

People want decentralization. They know that a centralized authority is difficult to trust.

And the Stellar ecosystem is exactly the type of decentralized system that can replace both Ethereum and Ripple as a smart contract, ICO, and international settlements system.

Stellar doesn’t hide its secret sauce. It has an open source philosophy and rewards community members for fixing bugs in its code.

It has a massive plan to give away millions of dollars worth of its cryptocurrency to people around the world. But its not giving away money purely for altruistic reasons. It wants to create a network effect.

If you give away one dollar worth of currency to 1 million people in the USA, it wouldn’t make much sense because the average American wage is so much higher that people wouldn’t waste their time dealing with it. But for billions of people in the world who make less than a dollar a day, one dollar worth of Stellar Lumens is extremely valuable.

If one million unbanked people have one dollar worth of Stellar Lumens, we will have a currency that can rival a central government’s.

Led by Ripple cofounder Jed Mcaleb, is a nonprofit foundation with a mission to eradicate poverty. Not to be unpatriotic, but in contrast, the US government is a bankrupt corporation with the most nuclear weapons in the world.

I don’t just think Stellar can become the next global currency, financial infrastructure, and blockchain architecture. I think humanity needs it to be.

So for now, when a person wants to get into cryptos, they will probably buy Bitcoin. Not because Bitcoin is the best, but because its the only crypto they’ve ever heard of. Billions of people are going to enter the crypto-economy. I remember when my mom asked me “What is an iPod and do I need one?”

Well, even though they have no clue what they are and why they are useful, millions of people, banks, governments, and corporations are starting to ask..”What are cryptocurrencies and do I need them?”

And once they realize that they do need them, they will have to make a choice about which ecosystem to participate in. When a person chooses Apple over Microsoft, or Coke over Pepsi, they do it with conviction. Its a commitment based on if the brand is aligned with their own style and personality, not to mention their social affiliations.

In summary, we are in the storming and forming era of cryptocurrencies.

Which crypto will take the lead and become the internet of blockchain? Will it be a centralized crypto run by good old boys? Will it be a smart contract system that forks whenever there’s a hack? Will we anticipate quantum challenges to this system or kick the can down the road? Will people just jump on the Bitcoin bandwagon and stay on it forever?

You see, Coke might be famous now, but they have long seen the writing on the wall. Its 2018 and everyone has access to information. Every day, more people are learning that sugar is bad for them. So now you can buy stevia sweetened Coke. And long ago, Coke invested in spring water and bought health beverage companies like Odwalla. Being famous is temporary.

Eventually, you have to be useful and anticipate the needs and desires of the people you serve. Likewise, cryptos must evolve or die.

At this very moment, we are determining which protocols will be used as the architecture for the future of the global everything-system. And for humanity’s health, I hope it makes the right choice.

April 26, 2018

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