Why Enterprise Blockchains Fail: No Economic Incentives

Which use case will be most profitable when the network is mature?

Like social networks, blockchain consortia derive much of their value from network effects: that the value of the network to each participant increases with each additional participant.

Few projects understand that different use cases have different types of network effects, and the dynamics of these network effects impact how each use case develops.

First, any consortium project must select an initial use case that can deliver value for a new, sparsely populated network.

Social networks such as Facebook exhibit local network effects.

Use cases with local network effects may want to follow Facebook's lead and launch with a small, highly connected subset of the underlying network to demonstrate value in the short term.

Once the network has launched, the set of use cases and the network membership must grow hand in hand.

The optimal growth path for each depends on a number of factors, including the network effects of each use case, the level of market penetration the network has achieved, and overlap in resource contributions and participants among different use cases.

Products with network effects deliver more value as they grow, and users will be willing to pay more to use the network when there is widespread market penetration.

Charging early users too much, too soon, or imposing too high up-front costs, will stunt the growth of the network and prevent the network from ever reaching market penetration.