On the Network Effect and Ecological Effect of Blockchain

I. Ecological effects

The last two days I saw Mr. Xiao Feng's latest article "Blockchain is pursuing ecological effects" . The main point of the article is that the industrialization era is pursuing the scale effect, the Internet era is pursuing the network effect. It should be an ecological effect. I think the term ecological effect is interesting and worthy of further consideration.

In the words of Teacher Xiao Feng:

The ecological effect is a distributed economy, and it is no longer a company-taken business model. It's like a forest. It's an ecosystem. Everyone is no longer the way to set up a company, but to complete a thing together as a stakeholder.

In the industrial era, the biggest commercial pursuit is scale efficiency, which requires large-scale production, standardization and low cost. But scale benefits are additive effects, 1 + 1 = 2, 2 + 2 = 4. In the information age, Internet companies are no longer emphasizing scale effects, but network effects. The network effect is a multiplicative effect. Taking communication as an example, if there are only two people in this communication network, only one-to-one communication can occur. But if both networks have four people, then 4 × 4 becomes 16 instead of 4 + 4 = 8.

From the perspective of distribution, the distribution method of the blockchain is no longer a traditional company-based distribution, but a stakeholder distribution mechanism. Everyone contributes value, and the more you contribute, the more you get. On this basis, we work together to build a better ecology, an open economy, and a fully scalable, borderless business.

Second, make money effect

Why am I so interested in this word? Because I was thinking about this problem myself before, I found that there are some differences between the companies in the blockchain field and the Internet companies, whether from the underlying wealth logic, business model, or traffic acquisition perspective, but in the early days, thinking It's not that mature yet, and I remember in the early days I used the term money-making effect.

What is the money-making effect? It is said that in the traditional Internet era, the most important thing is traffic, and there is a profit model when there is traffic, whether you use advertising fees, membership fees, or any other method. For those small platforms, even if the business model is good, but without traffic, it will be difficult to rise, and in the end it may be working for large companies.

But after the blockchain era, some changes have taken place in the logic of traffic. Although some large projects and star projects can naturally get a lot of traffic, at the same time small companies seem to have some opportunities. Because at that time most blockchain projects will issue tokens. For those projects that have issued a token and listed on the exchange, as long as the price of the token is high enough, the increase is large enough, regardless of your company's reputation You can naturally get a lot of traffic, a little fluctuation in the price can greatly induce people's adrenaline, and people's eyes are easily gathered on the beating numbers. At this time, if the company's business is indeed doing well and everyone just needs it, then many small companies can easily stand out because there is something more important than traffic behind it, which is the money-making effect.

However, this money-making effect is based on the issuance of tokens and listing and trading. After the issue of coin financing was banned, this argument naturally did not hold.

Later, after further in-depth thinking, my idea also changed from a simple money-making effect to a deeper ecological effect. Yes, it is exactly the same as the word used by Mr. Xiao Feng, so when Mr. Xiao Feng mentioned the word, My thoughts are somewhat coincident, and I am personally quite happy.

Third, the mathematical expression of ecological effects-m to the power of n

Teacher Xiao Feng said that the scale effect is 1 + 1 = 2, 2 + 2 = 4; the network effect is 2 * 2 = 4, 3 * 3 = 9, 4 * 4 = 16, this statement is very vivid, I continue Continuing this statement, I think that the mathematical expression of ecological effects is the m-th power of n, for example, the third power of 3 = 9, the third power of 3 equals 27, and the fourth power of 3 equals 81.

Where n represents the connection of the project itself, just like the square of n in the scale effect expression of the Internet. These two n's have the same meaning and are both internal connections of the project itself. When there is only 1 user, n is equal to 1, and the influence of the project is 1. When there are 2 users, n is equal to 2, and the influence becomes 4; when there are 3 users, n is equal to 3, and the impact is The force becomes 9.

The difference between the two is in m. In the scale effect of the Internet, m is fixedly equal to 2, which is the second power, but in the ecological effect of the blockchain, m can be equal to a number greater than 2, such as 3, 5, or even more Big numbers.

Although it is only a numerical difference, but mathematically everyone knows how big the difference is behind this. For example, the square of 10 is equal to 100, but the third power of 10 is equal to 1000. There is an order of magnitude behind it. If the number of m is larger, the difference is greater. This is the difference between ecological effects and network effects.

Specifically, within a blockchain project, this n means how many active users the project itself has, how many active addresses it has, how much real market demand there is, and how much on-chain transaction transfers are related to the project itself. Related to the development of this, the same as the Internet.

But what does this m mean? m indicates how much ecology your external links have. This may be a bit abstract. I can explain it this way. For example, a blockchain project uses the DPOS consensus mechanism and has 21 main nodes. When an external institution becomes a project node, it will bring a lot of itself. Traffic, funding, visibility, and the network effect of this external agency itself.

For example, many exchanges will now participate in the project, some may simply be mortgages as nodes, and some may be more deeply involved. When the exchange is deeply involved, for example, the exchange and the project itself jointly organize some activities, or have some cooperation in the underlying business, or open up some data. The exchange itself is a high-frequency, just-in-demand, large-market business, and its own traffic is very rich. When such an ecological party is connected to the original project party, the promotion effect of the project is very obvious at this time. It is possible that the development of the project will no longer be the original intrinsic connection, which is the square of n, but will grow in a higher exponential form. This only mentions one node. If multiple nodes contribute power at the same time, some nodes are used as wallets, some nodes are traditional Internet media, and some are other types of external institutions. They import traffic at the same time and have deep business cooperation. When these communities of interest form an ecology, it will greatly promote the project party itself and other participants in the ecology.

Of course, this is only a theoretical consideration. The degree of integration of the two parties in the real life, the degree of ecological closeness, and the internal consumption of the ecological will directly affect the ecological effect. Is there an upper limit or a breakthrough for this ecological effect? It's something that needs to be considered before a certain threshold can work. And using the nth power of m is definitely exaggerated in numbers, this is just an image expression method, everyone can get the meaning, just as the network effect is not exactly the square of n.

Fourth, the time dimension of ecological effects

Starting from this formula, we can make some simple inferences, for example, we think from the perspective of time and development speed. We know that traditional industrial and commercial enterprises need at least 10 years of development and accumulation if they want to be a company like Coca-Cola. You need city-to-city promotion and province-to-province coverage; but when it comes to Internet companies, the Internet's The window period is estimated to be about 3 years, a longer period of 5 years, and generally 3 to 5 years, a unicorn company with a valuation of 1 billion US dollars was born.

This difference in time and development speed is also derived from the relationship behind it. One is based on scale effects, which need to be accumulated one by one, and the other is based on network effects. With the square effect, the speed will be faster.

Then in the blockchain era, when the development speed is n to the power of m, this time may be further shortened, and this time window may be compressed to less than 3 years, such as 1-3 years. Take Ethereum as an example. It has only been 2-3 years since the development of Ethereum, but today the market value has exceeded 100 billion yuan. Although Bitcoin has been developed for 10 years, it has grown tens of millions of times in these 10 years. If you look at the three-year limit, it will also be hundreds of times and thousands of times the growth rate. Therefore, it can be speculated that under the superposition of this power law, if the blockchain industry really comes out of explosive projects in the future, it will likely form an explosion in a very short period of time, and it may grow in a short time. Within three years, no matter how short, I worry that some projects may not be developed by themselves. Once they have pinpointed the position of their business, found their own breakthroughs, and set up the relevant ecology, many traditional established projects will rely on the past, and everyone will communicate with each other. That 10 billion market value company may appear in the short term.

V. Market value dimensions of ecological effects

In addition to the time dimension, the market cap dimension is also very interesting.

We know that a traditional manufacturing company with a market value of tens of billions is very exaggerated, and this is still based on the premise of massive profits. When you have huge profits, then a multiplier of P / E ratio, such as 10 times, 20 times, or a little higher 40 times is already exaggerated. If you want a market value of 10 billion, you may need 500 million profits. It takes a long time to make a profit of 500 million yuan for 1 dime, so it is very difficult for the industrial enterprise to exceed 10 billion yuan in market value.

When entering the Internet era, I found that a large number of such companies that had not been established for a few years have become 1 billion unicorns, and in a few years they have become 10 billion, and in a few years it has become thousands. Billion market capitalization company, and at this time it has no profit. This is also for a reason, because the Internet is directly oriented to global users. It is not the same as the industrial base in terms of user base and growth rate. A company like Alibaba may not be profitable for 10 years, but once it starts to profit, it is a few The process from 0 to 100 million and from 100 to 10 billion during the year, so the valuation of Internet companies has grown rapidly, and the number of Internet companies with market capitalization exceeding 10 billion is large.

So, for a blockchain company, it has an exaggerated ecological effect behind the square of n, so I think whether it is the degree of connection to stakeholders, the size of the population it can cover, or it can produce (Of course, the blockchain industry does not have the concept of profit, and the profit is fully reflected in the currency price) will be more exaggerated than the Internet, so I think that the market value of giant companies in the blockchain industry will likely rise on the basis of the Internet. An order of magnitude, the emergence of a trillion-dollar market capitalization company should be a high probability event.