I recently mentioned network effect in a tweet and it seems to have opened a few eyes.
To be honest it opened my eyes even further as well the more I thought about it the more I thought this needs to be explained and understood for those who kind of understand Holochain but don’t really know how much value it is going to attract or create.
In this article I will try to be brief, my plan is to explain what the network affect is, how it will interact with Holochain and for those of you out there in blockchain land reading this I’ll also explain why there is no possible pathway to achieving success for a singular or multiple blockchains competing against each other.
There are also barriers to achieving network affect, things like scalability, uniformness, congestion and adding a blockchain is also a barrier to this, I will go deeper into this later.
What is the “Network Effect”?
A quick google search answers every question and the most basic way of putting it is as follows from Investopedia;
“The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service. The Internet is an example of the network effect. Initially, there were few users on the Internet since it was of little value to anyone outside of the military and some research scientists.
However, as more users gained access to the Internet, they produced more content, information, and services. The development and improvement of websites attracted more users to connect and do business with each other. As the Internet experienced increases in traffic, it offered more value, leading to a network effect.”
As you just read the critical take-away is “as more users gained access”.
Holochain is an architecture or framework for hosting decentralized applications.
There are already hundreds of dApps or Decentralized Applications on the market and are tracked and measured by sites such as Dappradar.
As you can see the world as we know it, in particular the blockchain world only sees dApps as being something to use to interact with another blockchain for the most part.
There are a few games, some gambling but most of the volume, customers and any evolution is related to a blockchain.
And there is quite a few of them there, this list will only grow bigger and bigger as more and more new blockchains try and steer you towards their preferred chain.
What I’m highlighting here is that its not even possible for Network Effect to take place because you have so many competing chains, then on top of that you have other barriers including but not limited to:
Every evolution or action is itself a transaction.
There needs to be mining or stakers to maintain security for transactions.
There is the ever present cloud of volatility hovering over every blockchain’s head.
The blockchains suffer heavily from congestion.
Cannot scale to a global network affect.
Requires most people to learn about, purchase, sign up for tokens or coins then probably at least a third will have money stolen or depreciated and never return.
There is a never ending list of why blockchain can’t and never will have network effect. The only constant network affect blockchain is capable of is increased gas fees and slower transactions, it doesn’t improve on itself it slows itself down and makes itself more expensive for all of the end users the busier it gets.
The only ones who are guaranteed to make money in cryptocurrency regardless of the market prices are the exchanges, the miners and the stakers.
Even the stakers risk sitting on the sideline watching their investment go up or down 10 to 70 percent in any given 24 hour period.
Hosting in general
Before I speak about Holo hosting and the network affect let me just add a few simple comparisons about what you just read about blockchain into the mix first.
Firstly and even ironically 99.999% of all blockchains rely on traditional cloud/data center hosting services. And I say its ironic because one of the biggest sites to feature on Dappradar is Uniswap.
Uniswap is hosted entirely on AWS, Amazon Web Services.
So every time you perform an action using Uniswap or any of the other exchanges, you are not only contributing to the miners and or stakers of the coin/tokens you just exchanged but you're also indirectly paying Amazon Web Services.
The same could be said for this website, medium.com, the website you are reading my rant on. You have willingly or not just contributed to the bottom line of the share holders of all of the data center and cloud companies listed in the image below.
They spend $8 Million per month on hosting, yes you read correctly $96 Million dollars per year, and this is just one website.
Medium obviously has a revenue to cover these costs through membership etc.
Blockchain covers the costs of hosting themselves because they make a fortune not from actually selling anything, they don’t have a product to sell, their money is derived from transaction fees and other associated costs.
Blockchain has created the perfect storm that sees the rich get richer and the poor still pay them because that is how the entire system is run.
Moving onto a different topic lets look at Signal App, the very popular privacy focused application.
Every user of Signal App is also contributing to the bottom line of AWS and a few other providers.
Every message you send, every video session, every like, every swipe, everything you do requires hosting.
Cloud & Data Center Hosting
I think most of you get the picture now, or hopefully appreciate that every time you do something on the internet, scroll, like, play, buy, sell everything is being hosted by a data center or cloud infrastructure.
These may be spread out across the globe, the hosting industry is huge and for good reason. It forms so much of our lives daily, even more so now with Covid19.
So in case you didn’t know there are such things as “Hyperscale” data centers. Hyperscale data centers are massive business-critical facilities designed to efficiently support robust, scalable applications and are often associated with big data-producing companies such as Google, Amazon, Facebook, IBM, and Microsoft and there is around 500 of them on the planet right now.
Obviously more and more are being built because the last time I checked a couple of years ago the number was around the 72 mark.
They need these giant (non eco-friendly) centers to cater for the worlds demand and they use a hell of a lot of electricity, most of which is used for cooling.
They cost billions of dollars to set up and the aforementioned companies continue to do so because providing data is easy for them with giant infrastructure.
Even then it still fails regularly which is why there is also a multi-billion dollar “Data Redundancy” market so they can sell it to you twice. Once for their great service and secondly (with a special discount Sir) may we also suggest that you backup all of your data with us using our redundancy packages.
Big companies take advantage and need these massive data centers to continue to provide a service.
Before I get onto Holo hosting and network affect, have a look at the image below which shows Slack. A global messaging and shared workplace company, they spend $3 Million per month on hosting, predominately with Amazon Web Services.
Why are they paying so much?
Why are any companies paying so much for data hosting? Because the market although growing it has stabilized somewhat.
Below from Wikipedia in relation to network affect, its really important to understand also the critical mass theory, my comments on this are in [brackets].
“In the early phases of a network technology, incentives to adopt the new technology are low. [Bitcoin, Ethereum]After a certain number of people have adopted the technology, network effects become significant enough that adoption becomes a dominant strategy. [Bitcoin, Ethereum/others]
This point is called critical mass.
At the critical mass point, the value obtained from the good or service is greater than or equal to the price paid for the good or service.[All blockchains fall under this umbrella except that there is little to no value obtained unless your coin or token rises in price or you were an early investor, run an exchange or mine the currencies].
When a product reaches critical mass, network effects will drive subsequent growth until a stable balance is reached. [Holo hosting will be the same except that to manage stability HoloFuel will use an algorithm that causes the supply to expand or contract, it also takes in information signals from application publishers, hosts, bandwidth, uptime and various other signals.]
Therefore, a key business concern must then be how to attract users prior to reaching critical mass. Critical quality is closely related to consumer expectations, which will be affected by price and quality of products or services, the company’s reputation and the growth path of the network.
Thus, one way is to rely on extrinsic motivation [Holo hosts are paid in HoloFuel which can then be exchanged into Fiat dollars], such as a payment, a fee waiver, or a request for friends to sign up.
A more natural strategy is to build a system that has enough value without network effects, at least to early adopters. [This is where we are on this path right now. If you are putting money into HoloFuel now you are presuming that there will be a network effect with Holochain and Holo Hosting] Then, as the number of users increases, the system becomes even more valuable and is able to attract a wider user base.
Beyond critical mass, the increasing number of subscribers generally cannot continue indefinitely. After a certain point, most networks become either congested or saturated, stopping future uptake. Congestion occurs due to overuse. The applicable analogy is that of a telephone network. While the number of users is below the congestion point, each additional user adds additional value to every other customer. However, at some point, the addition of an extra user exceeds the capacity of the existing system.
[The creators of HoloFuel, Holo Hosting and Holochain have already bypassed the above issue of congestion as you will read below, provided there is enough hosts, there will be no such thing as congestion on Holo hosting.]
After this point, each additional user decreases the value obtained by every other user. In practical terms, each additional user increases the total system load, leading to busy signals, the inability to get a dial tone, and poor customer support. Assuming the congestion point is below the potential market size, the next critical point is where the value obtained again equals the price paid.
[Once again, Holo hosting operates in a torrent form in that the more load it is put under, the better it performs. In the case of Holo hosting each additional user may increase the system load but it also means that there will be a need to on-board more hosts and the price will follow the demand.]
The network will cease to grow at this point if system capacity is not improved. Peer-to-peer (P2P) systems are networks designed to distribute load among their user pool. This theoretically allows P2P networks to scale indefinitely.
As you can see from the last paragraph above, having a direct Peer-to-Peer system to evenly distribute the load and surges is exactly what Holo hosting was created for.
If you were doing a SWOT analysis on Holochain it pretty much ticks every boxes it needs to.
Holo Hosting and HoloFuel
For those of you unfamiliar with what HoloFuel is, it is the internal payment currency (it isn’t a blockchain) for the Holo hosting architecture.
Its how application publishers and creators pay the global Holo hosts in continuous micropayments.
We are still waiting on documentation to be released by Holochain about how this will work with regards to hosts selecting publishers and vice versa but we do know hosts will be able to host multiple applications.
For those not familiar with the Holochain ecosystem I suggest you read up on some of the articles from Holo and Holochain, click on my profile and I have a lot of content as well that helps explain some things.
But getting back to HoloFuel the words on everyone's lips is how much will it be worth when the network goes live.
That’s a question neither I nor anyone else can answer with any degree of certainty.
What I am certain about is several things that I know are facts about Holochain and Holo hosting that tells me personally the price of HoloFuel is going to rise considerably over time until it reaches that “critical mass” but the beauty of this is, as far as infrastructure causing crtitical mass, with Holochain it isn’t possible, so that removes that argument.
An application hosted on Holo hosting might see an initial spike in users and then see a small drop or a levelling off, that’s to be expected and will also give the publisher and the hosts an idea of where they stand and what to expect in the future.
If a Holochain application goes insanely viral then you will see price increases of HoloFuel but without the attached volatility. Because what would happen is the publisher would be going holy shit I need more hosts, this thing is blowing up on me, then more hosts will enter that particular applications hosting and therefore individual previous hosts may still be paid the same or slightly more but the new hosts will take up the extra cash required for hosting.
When you think about it, its a very fair system, you do the hosting you get paid, the app blows up, you still get paid but the value of your HoloFuel has just risen also as there is more demand.
Now we enter unchartered waters because there are many factors and moving parts with Holochain, Holo Hosting and HoloFuel.
When I say unchartered waters I mean we don’t know how the world will react to it when its fully launched.
The one thing about network affect that suits Holochain and Holo hosting is that it has the ability (There isn’t another system on earth that can do this) to serve directly to web browsers.
So you might have some young entrepreneur who says to a team of Devs, build me something faster, cheaper, safer but similar to Twitter and do it on Holochain.
This opens a whole new can of worms for those using traditional hosting because Holo hosting can offer features that no other hosting providers can do, I’m sure you know some of them but will list a few anyway.
100 percent Peer-to-Peer, no data centers or clouds.
No need for redundancy costs as your data is sharded and spread out across hundreds or thousands of hosts.
Low overheads, no expenditure on giant data centers or infrastructure.
An honest and trustworthy public team who are currency creators not your regular blockchain snake oil salesperson.
The busier your application becomes more hosts can be auto-deployed with infinite scaling.
Unlike blockchain nothing is tokenized, end users may not even know that they are using an entirely publicly hosted Peer-to-Peer application either through their web browser or other device.
You have the right to own your data, you can remove any of your personal data from any Holochain created application at any time, it doesn’t live permanently on a server waiting to be stolen or sold.
You have the right to be forgotten from any platform and have all traces of your existence removed.
Next level security, each application is its own DHT or Distributed Hash Table, for security there is peer to peer validation, cryptographic signatures and “Gossip” between peers authenticating data as its published at light speed.
The hosting isn’t just for social or public facing applications, you can run an entire intranet on Holo hosting and the public need never know it exists.
You can create digital currencies that are free to send or the publisher can add a small nominal price.
Holochain applications are transport protocol agnostic, you can use it offline, via Bluetooth, own Wifi network or even HF or VHF radio.
It has endless use cases in IoT and has been referenced by science as being able to do things in IoT that have previously not been possible.
Think I will leave it there, I could go on but I feel like I’m repeating myself like a broken record.
One thing to keep in mind is, although before HoloFuel is fully functional its placeholder token $Hot will be around for a while but the biggest mistake I think many in the blockchain world are making is that they have so much white noise from Defi, NFT’s swaps, hacks etc they all want to make money.
Blockchain is a bit like North Korea, they are an enclosed space, they have trouble controlling what they create. Anything they build is only sold to other North Koreans and they only listen to the blockchain North Korean style propaganda.
They don’t sit back and think, my coin xxxx is using Amazon web services, for nodes, I just did a swap on Uniswap (also paying Amazon) and now I sit and wait for the price to go up and the only way to do this is to try and shill it to others.
Am I being hypocritical? Maybe, I shill/promote and try and teach about Holochain but there’s 2 big differences, I don’t care if you buy it or not and I know it has an enormous future well beyond the fenced off heavily defended blockchain world.
With Holochain apart from everything I have listed above is that unlike blockchain there doesn’t need to be a payment for a transaction or evolution its security is more robust than a few nodes possible with a few rogues.
The other thing about blockchains that try and say new web, web3.0 etc is what they neglect to tell you is that you either need to use a specific browser or create an particular ID just to enter then siloed world.
Holochain has no such deficiencies, its up to the application publisher to decide what information is required when someone “signs up” and they can do some directly from www.example.com they don’t need to enter a vacuum void of external communications.
I think the biggest opportunity Holochain has will not just come from its end users but from the application publishers themselves.
If I own Protonmail or Signal messenger, lets use those 2 as an example and both pride and advertise their security features and encryption etc
If I am CEO of their company, I am thinking, what if there was a way I can add a further layer of data protection?
The simple answer is you can, Holochain data is encrypted at rest and sharded across hosts, so being offer to able your clients not only an encrypted ecosystem but also one that has zero down time and isn’t a centralized attack vector is to me a really big selling tool.
Apply this same theory to multiple industries and companies and from there you can decide the value of HoloFuel in your mind.
Hope this helps for some further reading be sure to check out my other articles or this one from Holo.
So do yourself a little mental exercise and for the next 24 hours count how many times you click your mouse or swipe or touch your phone, each time you do and your visiting a site or application, you are indirectly paying a hosting provider.
Holo hosting is no difference, when the network effect hits Holochain its just to grow and grow.
If you made it this far, thanks for taking the time to have a read.