Network Value Through the Prism of Beckstrom's Law

in LeoFinance3 months ago


I have talked about Beckstrom's Law in the past. I would like to speak more about it in regards to Hive, its value as a network, and benefits it presents. Beckstrom's Law is not that difficult to understand, in fact it makes the most sense, especially for networks with an ambition in becoming a decentralized one. That said, it is not a formula only for decentralized networks. It can be applied for all networks.

First, let's examine what it is.

Beckstrom's Law states "The value of a network equals the net value added to each user's transactions conducted through that network, summed over all users." This law is applicable to social networks and other connected populations

To figure out the value of a network, first we need to figure out the value the network adds to each participant of the network. We achieve that by calculating costs and benefits of each transaction that participants engages in within the network.

As an example, let's take Amazon, a network for online shopping where merchants and buyers come together. When a seller conducts a sale of a product, they need to calculate all the costs for that transaction including the fees they pay Amazon. If this seller ends up in a profit this transaction added value to seller. Now, if seller takes all the transactions into consideration within a certain period of time and still end up in profit, it is beneficial to the seller to be part of this network.

Similarly, buyer needs to take into account costs and benefits of participating in the network. If costs exceed the benefits of participating buyer may choose to leave the network. If benefits outweigh the cost than buyer will probably continue transacting in the network. For the buyer, costs may be certain membership fees like Amazon prime, internet costs and access, etc. But the access to the global network of sellers with a possibility of getting better deals than local merchants and the convenience of not traveling to a store may be beneficial for the buyer.

Sellers and buyers are the participants of this network. But we also have a bigger participant, or rather the facilitator of the network, the company - Amazon. Amazon also has costs of facilitating this marketplace and also they have benefits or profits for doing so.

Let's say Amazon keeps 30% of sellers profits for making this marketplace possible. It would be in their best interest that all participants: buyers and sellers retain some kind of value or benefit to remain within the network. As a centralized entity that takes big chunk of value out of the network they created, Amazon will have all the resources needed to continue to provide value to all participants.

This would apply to other centralized networks like Facebook, Twitter, Apple, Google, etc.

Let's consider Apple. As a company they have created a network of mobile phones and ecosystem for Apps. While they make profits from their mobile devices, they make more profit from their Apps Store, which is a network for App developers to sell their software and App users. Among the costs to facilitate such network may be Apple's programming language Swift, their libraries to make App development fast and easy, etc. At the same time they need to provide secure and easy access for users.

They may allows developers from around the world to access this global market of user-base, at the same time it allows IOS users to search and find Apps they may be interested in. When transactions of sale happen whether it be via selling an App or free versions powered with Ads, Apple end up taking 30% of the profits. Just like Amazon, it is in the best of Apple's interest to facilitate as many transactions as possible for them to gain more profits.

We can talk about Youtube, and other services. The bottomline is in centralized networks the entities that facilitate such networks gain the most by allowing participants also have some kind of benefits.

It seems to me, they understand Beckstrom's Law well.

Now, the competition to centralized networks is the decentralized alternative. Hive can be one of such alternatives. In the past I used to believe Hive is a decentralized network. I have changed my understanding on that recently. I believe, Hive is semi-decentralized and perhaps decentralized enough for time being. Without going to much into details about the level of decentralization, let's examine how Hive can benefit from Beckstrom's Law in increasing its value.

Transactions values or benefits can be defined in many different forms. Most important one that everybody would notice is the financial value. But there are also other benefits like ownership of accounts, immutability of the content, etc. When it comes to content we can even go further and list benefits of content in educational, entertainment, and networking benefits.

Now, you the reader, can evaluate yourself what benefits and cost are there in transacting on Hive. If you end up with a positive value that means the Hive network adds value to your participation. If you end up in a negative, you will probably end up not using the network soon because cost end up accumulating over time and may become not worth participating.

This formula dictates that for a network to grow, the participants of the network should gain positive value out of it. The more participants end up in positive participating in the network, the more participants will join. More nodes or participants joining any network is the key to scale the value of the network. Simply adding value to more participants won't make network successful, and such value are limited. However, increasing the level participation and retaining it adds enormous amount of value.

In a network that relies on DPoS, a lot has to do with the vision and behavior of the stakeholder. If stakeholders fail to recognize the trends where participation is being increased and onboarding and retention is being heavily influenced, this may cause the network to lose its value. While on the opposite side, when stakeholders recognize these and take proper actions may add positive value to the network and its future.

I like to talk a lot about Leofinance and promote their witness to stakeholder. That is because I recognize how this project is increasing the participant growth and retention in the Hive network without costing a dime to the network itself. There are projects that take financial sums out of the network while not adding much to the participant growth and engagements.

When we face the reality of value for all participants, and the value of the network itself through the prism of Beckstrom's Law, instead of relying on status quo or our biased believes, we may overcome the difficulties of growing in a decentralized space.

For now it seems to me Hive is struggling as semi-decentralized, controlled by few kind of a network. To let decentralization happen we need to overcome our own egos, recognize where value is driven from, where participation is happening, and focus on growth. Networks are meaningless if there are no participants. We are nothing if there are no crowds behind us. It is in the best interest of stakeholders to recognize this and perhaps listen to what community has to say.

Otherwise, it is same old same old.

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It all boils down to listening to what the community has to say, lately this hasn't been really so. I believe that you ended strongly with a point which is; we need to know where value is really driven from. I think this has been a big issue and seriously leofinance project as at large has been managing to leverage this to bring the long gains to the table. As much as we have coders we need economists as well.

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You have summarized my thoughts better than I could. :)

Thats Why I think leofinance witness should be in the top 20. There's no time to waste as we can't keep on with how its going. I believe there's a right formula to make hive more atractive. The community's voice should be listened to

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You Blow My Mind GIF-downsized.gif

Very articulated and well-argumented article.

In a network that relies on DPoS, a lot has to do with the vision and behavior of the stakeholder

Yes, DPoS demands the competence of its stakeholders to recognize the opportunity and embrace it. The same applies to proposals which are also a vital part of the development of the network. Lack of responsibility is what triggers me, personal benefit over the public interest - something we have in real life.

Decentralization is something that can always be improved.

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Yes, we can apply it to the blockchain
That is why I see that this year is different and that we have a large fan base on which we can build value for crypto, just like Amazon, Apple and others.

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La verdad es todo como lo pienso yo, gracias por compartir.