Twelve Principles of the Network Economy
What are the Twelve Principles of the Network Economy?
Kevin Kelly, the founding editor of Wired magazine and tech guru was a consultant for Steven Spielberg's film Minority Report. Kelly required the cast of The Matrix Revisited to read his book Out of Control, which discusses decentralized and self-sustaining systems.
In 1998, Kelly published New Rules for the New Economy, which expanded upon his previous article in Wired and outlined the 12 principles of the network economy.
In 2018, Kelly stated that he would not change much in the book, even after two decades of rapidly advancing technology, highlighting the enduring relevance of these principles. The network economy, which is the emerging economic order within the Information Society, remains difficult to define, but Kelly's 12 principles of the network economy offer a valuable understanding of it. These principles are especially important for anyone in the blockchain and crypto space, and even those who use the internet for purposes beyond entertainment should consider learning them by heart.
The Twelve Principles are:
- The Law of Connection: Embrace the power of connections, even if they seem insignificant. The more connections you have, the better. Imagine yourself as a node with edges representing connections. The more connections you have, the more powerful you become.
- The Law of Plentitude: The more members a network has, the more value it adds. This can be illustrated by considering a scenario with only two phones in the world. With just two phones, there is only one connection between them. However, when three phones are added to the network, there are now three connections. When four phones are added, there are six connections. And when five phones are added, there are ten connections. As more members join the network, the number of connections grows exponentially.
- The Law of Exponential Value: The value of a network grows exponentially and success is not linear. It may seem like adding new members to a network requires a lot of effort for minimal returns, but eventually, there will be a point where the value of the network explodes. This is exemplified by the growth of Bitcoin, which remained relatively dormant until it was adopted by black markets in 2011. The work of crypto-anarchists in building up the network and following the Law of Connection and the Law of Plentitude contributed to this success.
- The Law of Tipping Points: The importance of a project or event must be recognized before it gains momentum in the network. In nature, especially in the spread of diseases, a certain threshold must be reached before an epidemic occurs. However, in technology, where information spreads quickly and participants often facilitate the spread, the threshold is lower. An example of this is investing in Ethereum in 2015 or Antshares in 2016 after recognizing their potential and joining the network before it gained widespread momentum.
- The Law of Increasing Returns: The value of a network grows exponentially with each new member. This increase in value attracts more members, leading to even more growth. To create value in a network, it is important to constantly add new members. These new members will contribute to the value of the network, leading to further growth and the addition of even more members.
- The Law of Inverse Pricing: Expect prices to decrease as the network economy grows. In the past, slightly improved products were sold at higher prices. However, in the network economy, major improvements are often offered at lower prices. This trend can be seen in both physical devices and the information society. For example, new gadgets often have improved technology and added value through connectivity, but are sold at the same or lower prices. The network, which is mostly the World Wide Web, allows for quick and easy access to knowledge and information at a minimal cost.
- The Law of Generosity: Giving away things for free increases the value of the network. This is why open-source software is so popular, and why airdrops in the crypto industry are a successful way to expand networks. The same principle applies to knowledge as well.
- The Law of Allegiance: There is no central authority or defined perimeter in a network. When choosing a platform to do business, the size and strength of the network are more important than the specific product being offered. For example, you might choose eBay over Craigslist for a scalable shop business due to the larger and more established network on eBay.
- The Law of Devolution: This principle involves relinquishing control at the top levels. On a macro level, the sudden collapse of established domains is inevitable and can be replaced by new ones quickly. Binance, despite its success with a centralized solution, is building a decentralized exchange because they recognize that this shift can happen at any time. On a micro level, it is valuable to let go of current products, occupations, or industries and try something new when the returns on additional effort become diminishing.
- The Law of Displacement: The network always prevails and isolated domains eventually become part of it. In 2017, many projects chose to deploy an ERC token rather than creating their own blockchain or forking an existing one, demonstrating the dominance of the network.
- The Law of Churn: Change can be destructive, but churn can be creative. In a world that is rapidly advancing due to technology, the collapse of established domains (change) has turned into the emergence of new domains (churn). For example, the sudden collapse of Facebook, which would be harmful to both users and employees, is an example of change. On the other hand, a startup going through many pivots until it finds its niche and hones its mission, strategy, and technology is an example of creative churn.
- The Law of Inefficiencies: Instead of trying to fix problems, look for opportunities and innovate. Rather than focusing on improving your current routine, leverage the power of the network. For example, if you are a Medium author, consider alternative platforms that have different models.