The public blockchain ecosystem: An empirical analysis

Discussion by Katya Malinova 

Felix Irresberger,􏰀 Kose John􏰁, Fahad Saleh

NFA 2020

\(\Rightarrow\) Empirically identify a "Blockchain frontier"

Provide an "organizing framework"

  • How to characterize these?
  • What do "users" value?
  • What makes some more prominent/dominant than others?

Many, many blockchain platforms: 908 native crypto-assets!

Key Contributions

\(\Rightarrow\) "Blockchain frontier" = 8 blockchains that are not dominated w.r.t.

  • adoption, scale, security

The cost of using the blockchain decreases in

  1. Blockchain adoption \(\to\) easier to find a coffee shop that takes crypto
  2. Blockchain scale (=capacity) \(\to\) faster transaction processing on the blockchain
  3. Blockchain security \(\to\) coffee brewer requires fewer blocks to be confirmed after yours

Users derive utility from transacting on a blockchain, but have to pay a ("waiting") cost

 

Basic Approach 

Scale (= transaction throughput) vs Adoption

  • measured as a maximal observed transaction rate
  • \(\to\) high enough scale requires sufficient adoption?

Comment 1: interdependence of the characteristics?

Security vs Adoption

  • Higher security \(\to\) the merchant requires fewer blocks to be confirmed after yours before transferring the good
  • Longer confirmation \(\to\) higher chance of payment but fewer customers
  • \(\to\) Is there a "risk-return" trade-off? 
  • Lower confirmation times when adoption (& the cost of customer loss) are high?

Scale & Fees vs. Security

  • Higher scale \(\to\) less willing to pay to get in front of the queue \(\to\) lower fees ...
  • One side of the argument? How is security obtained? Who pays for it? (Pagnotta (2020)).

Key insight: "Three blockchain characteristics drive user utility"

Comment 2: who are the users?

But who are the users?

  • A coffee drinker?
  • A coffee shop?
  • A developer for a coffee shop app? Cool tools/tokens for video games? 
  • ... ?

The paper focusses on: blockchain = payment system

What about differences in blockchain functionality?

Crypto markets are staging a comeback: in "Decentralized Finance"

Text

Source: https://defipulse.com

Who and what should we think of re: blockchain dominance?

  • Role of developers? 
  • Language? Skill/app transferability?

Comments 2 (Cont'd): Users and Usage ... 

EOS has a high throughput, but DeFi is on Ethereum

Multiple Dimensions of Functionality

  • Utility from DeFi apps?

Comment 3: Network Effects ... 

Network effects \(\to\) only a few standards can prevail (but which ones???)... 

  • Betamax vs VHS
  • HD DVD vs Blue Ray
  • Microsoft Windows ... 

Network effects  ... 

  • Higher user adoption is only part of it (direct effects ...)
  •  Indirect effects will likely play a huge role in shaping the frontier...
    •  Increased variety of services?
    • Compatibility? Developer support and involvement?

Déjà vu? Browser Wars? 

Summer 1996 Microsoft marketing plan presentation

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