The Value of a Network
This post is indirectly responding to:
https://steemit.com/gridcoin/@guk/gridcoin-how-to-generate-value
https://steemit.com/gridcoin/@guk/project-gridcoin-generating-value-v2
It's already built into most developed cultures: "Network with everyone you can." "You are your network." "The worth of your network is more valuable than the worth of your product."
Yet when the term network moves from shaky interpersonal interactions to algorithmic networks (particularly if there is incentive), this value seems to be forgotten.
A blockchain is a network of people enabled by computer code. Its value has little to do with its incentive structure, the one structure which has no direct influence on the actual network. An incentive structure was created to encourage people to participate in the original blockchain network. There exist blockchains without incentive structures.
"Why would people join these non incentivized networks? They are spending electricity for nothing in return!"
No. They are receiving the value of the network. For example, why do people continue to use Facebook when in fact they are giving their personal data to Facebook? People who use Facebook are essentially paying Facebook to use Facebook. They use Facebook because the value of the social network is greater than the cost; the social interaction provided by the Facebook network is of great value to its users and they will use it regardless of cost (to a point, of course).
Why is the Gridcoin blockchain of value? The Gridcoin blockchain is an open ledger of transactions operated by a network of scientists, researchers, and individuals who see value in data analysis. Do not underestimate the value of an open ledger and do not underestimate the value of the network which defines the blockchain protocols. On top of and secondary to the value of the network, Gridcoin has built an incentive structure which helps encourage non enthusiasts to cross the cost-barrier of participation: If you are hesitant to participate due to the cost of electricity, fear not, our network has determined that covering the cost of electricity for non-enthusiasts is a top priority and our protocols manifest that priority as best they can.
It is absolutely critical that we keep basic supply and demand economics in mind as we make decisions, however I do not believe that we should make any decisions based solely on basic supply and demand economics. The value of a network is not supply and demand.
I believe that our priority should continue to be subsidizing electricity costs for Idle Processing Potential (IPP). If we create this solid foundation now, we will have a head-start as the Internet of Things (IoT) truly begins to take off. In other words, I believe that we should focus on building a network which encourages Aunt Alice to hook her new smart fridge up to BOINC. This is not done by focusing on cryptocurrency supply and demand economics, economics which are still entirely undefined (securities, commodities, assets, currencies, what are they?!).
I believe that GRC burning and project funding has a part to play in the future economics of Gridcoin, however I continue to stand against an official move by the Gridcoin network toward a pay-to-play/profit/commercialized system, a system we raged against as Golem, SONM, and iEX were released.
Additionally, cryptocurrencies are evolving every week. If we focus on what GRC is now we might spend months building protocols that are immediately dated as the next blockchain upgrade is released -- EOS, graphene, etc.
I believe in Gridcoin the Network, not GRC.
Fair and obvious disclosure: I own a lot of GRC and would love to see it on the moon. However, I would prefer to see it on the moon with a colony built in 5 years rather than exploding on impact in 6 months.
If you look up Nick Gogerty, he is one of the founders of SolarCoin, he is an economist and writer and has masses of experience in real world banking and finance.
He postulates that the total value of any currency, is proportional to the number of nodes in the network, and for any currency you will find each node adds about $1,000-$2,000 of value. This is because a network and currency is a social protocol of exchange, not supply and demand economics.
When you hit a critical mass of nodes on a network, then it starts to become useful as a means of exchange; I have GRC + you will accept GRC = we can trade. The more people who can trade, the more valuable the currency becomes as a means of exchange, people build tools on top of it and so forth.
Im sure I have not done his theory justice, but I think you get the idea.
definitely going to look him up. thank you! (i love slr too)
as a less experienced economist, I look at the industry being supplanted by a blockchain. so if the remittance industry is $600 billion dollars+, that's $600 billion dollars to be distributed among networks which focus on remittance, with the proportion based on the perceived value of each network -- like the number of nodes if I'm understanding Gogerty's thoughts correctly. interesting times we live in.
That would make the gridcoin network very valuable. There are currently about 500 nodes (gridcoinstats) and a market capital of 11 million$. That's 220000$ a node?!
By nodes we mean people/businesses I think, its a social network.
On gridcoinstats.eu the team is listed as Team users w Magnitude 1813, Team users wo beacon 3011. Its hard to know, but if we add them together but if we do and say thats all the holders of GRC:
11,000,000 / 5,000 = 2,200
Anyway, its just a theory, and Gridcoin may be too small for it to properly work yet, and Im not an academic so I may have not fully understood it as I already said. Its another way to think about the issues tho.
If I find the time I will do some research on it. It certainly is an interesting way to think about it. Thanks a lot!
Interesting thoughts. Thanks a lot! It also fit in the recent discussions about what defines gridcoin value and why to prefer it over another coin.