Cryptoasset Market Structure and Concentration in the Presence of Network Effects

13 Pages Posted: 10 Mar 2021

See all articles by Konstantinos Stylianou

Konstantinos Stylianou

University of Leeds - School of Law

Leonhard Spiegelberg

Brown University

Maurice Herlihy

Brown University

Nic Carter

Castle Island VC

Date Written: January 15, 2021

Abstract

When network products and services become more valuable as their userbase grows (network effects), this tendency can become a major determinant of how they compete with each other in the market and how the market is structured. Network effects are traditionally linked to high market concentration, early-mover advantages, and entry barriers, and in the cryptoasset market they have been used as a valuation tool too. The recent resurgence of Bitcoin has been partly attributed to network effects too. We study the existence of network effects in six cryptoassets from their inception to obtain a high-level overview of the application of network effects in the cryptoasset market. We show that contrary to the usual implications of network effects, they do not serve to concentrate the cryptoasset market, nor do they accord any one cryptoasset a definitive competitive advantage, nor are they consistent enough to be reliable valuation tools. Therefore, while network effects do occur in cryptoasset networks, they are not a defining feature of the cryptoasset market as a whole.

Keywords: network effects, cryptoasset, cryptocurrency, bitcoin, metcalfe, metcalfe's law, concentration, monopolization

Suggested Citation

Stylianou, Konstantinos and Spiegelberg, Leonhard and Herlihy, Maurice and Carter, Nic, Cryptoasset Market Structure and Concentration in the Presence of Network Effects (January 15, 2021). Available at SSRN: https://ssrn.com/abstract=3756480 or http://dx.doi.org/10.2139/ssrn.3756480

Konstantinos Stylianou (Contact Author)

University of Leeds - School of Law ( email )

Leeds LS2 9JT
United Kingdom

Leonhard Spiegelberg

Brown University ( email )

Box 1860
Providence, RI 02912
United States

Maurice Herlihy

Brown University ( email )

Box 1860
Providence, RI 02912
United States

Nic Carter

Castle Island VC ( email )

One Broadway
Cambridge, MA 02142
United States

HOME PAGE: http://castleisland.vc

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