Network Effects and The Value of Universal Reputation
Metcalfe’s law is a familiar topic for most blockchain enthusiasts, at the same time it is a topic under heavy debate. After all, the idea that a network can increase in value polynomially with respect to the number of participants FOREVER is a bit silly. We at ZTrust believe that Metcalfe’s law is better modeled after a Sigmoid function than an unbounded polynomial, but that’s a topic for another time. The point is: more interconnectivity == good, and that’s what this article is all about.
Reputation in a single marketplace is valued based on the number of users in that marketplace (i.e. the amount of potential transactions that can be facilitated by that reputation). This is an example of a network effect; the more users in a marketplace, the more valuable the reputation on that marketplace is. This works alright in markets that are already large, but in smaller marketplaces low-valued reputation is not suitable as collateral and therefore cannot reliably provide the accountability required to secure transactions. For example, if you have a lot of reputation in an anonymous darknet market that may or may not exist in a couple of months, you have a much higher incentive to scam your customers because your darknet market reputation is the only thing on the line. Ebay on the other hand is far less likely to disappear, so it doesn’t suffer from the same risk. The ultimate goal is a reputation system that can be used on any marketplace, a Universal Protocol.
Here’s a graph I threw together to share my speculation of where each of the aforementioned reputation systems fall on Metcalfe’s curve.
Increasing the value of reputation is critical to maintaining leverage over marketplace interactions. This is because leveragability is linked directly to the value of whatever is being used as collateral. Like all network-based valuations, we can increase the value of reputation by making it usable on as many platforms as possible. A universal open reputation protocol would be able to provide massively superior transaction security for small marketplaces, as well as significantly improving confidence in large marketplaces.
We are designing ZTrust to be the standard protocol for any marketplace to implement inter-operable reputation systems. ZTrust can be used with any type of marketplace through a simple web3 interface; it is not limited to decentralized markets. Check out our website: ztrust.tech for more information and join the discussion on our subreddit.
