Path Dependencies in Blockchain

Published by Mario Oettler on

Path dependencies also occur in the blockchain space. Here are some examples:

  • Blockchain Networks: Bitcoin, for example, was the first blockchain and still maintains its lead compared to other blockchains, even if they provide similar benefits. The reason is that it has the first-mover advantage. This lead attracts developers, investors, and service providers to support Bitcoin, which fosters the position.
  • Token Standards (ERC20): Once a token standard is established and widely used, it is cheaper and easier to convince the community by building on top of it by creating backward compatible new token standards than inventing a totally new token standard.
  • Layer 2: Once a certain Layer 2 technology has been established, many solutions build on it. This drags further services to this layer 2 solution to be compatible with the existing services. Changing the layer 2 technology requires a huge change.
  • Governance: Politicians/developers can design rules to gain more benefits from them in the future, making it difficult to change those rules in the future.