The Cryptocurrency Ecosystem
An ecosystem is a governance structure for a multilateral set of partners that need to interact for a value proposition to materialize (Adner, 2017). Since the creation of Bitcoin, the cryptocurrency industry has evolved into an innovation ecosystem. An innovation ecosystem consists of a community of hierarchically independent, yet interdependent heterogeneous participants who collectively generate an ecosystem output and related value offering targeted at cryptocurrency analysts, educators, engineers, enthusiasts, investors, regulators, users, etc. (Thomas & Autio, 2019). Cryptocurrency has spawned technological innovations which include, but not limited to: blockchain protocols, cryptocurrency exchanges, data aggregators, financial services, hardware tools, mobile applications, and other technological innovations. As an innovation ecosystem, keystone leaders are needed to innovate value and share value with its ecosystem partners based on a shared understand and focal value proposition which serves customers and members. However, keystone leaders must effectively manage ecosystem dynamics such as coevolution, competition, emergence, and resilience (Adner, 2017; Moore, 1993; Thomas & Autio, 2019).
Innovation ecosystems, such as Ethereum (ETH), are multi-stakeholder venue for co-production which utilizes a set of shared technological capabilities to foster co-alignment around a focal ecosystem value proposition. Blockchains are exceptionally powerful tools that are positioned to change how the world transfers money, secures systems, and builds digital identities. Additionally, blockchains create honest systems that self-correct without the need of a third party to enforce the rules; blockchains enable rule enforcement through consensus algorithms and smart contracts. Blockchain and DeFi are currently disrupting industries which include, but not limited to finance. Collectively, the pair are important global innovations that will become increasingly important to the world at large as traditional fiat currencies are replaced by digital currencies. The Ethereum blockchain, created by Vitalik Buterin, providers software engineers with tools such as Solidity. Solidity facilitates the development of DeFi applications on the Ethereum’s ERC20 blockchain. The ERC20 blockchain supports custom tokens and smart contracts. From an innovation ecosystem perspective, Ethereum has a focal value proposition which supports co-creation output, community dynamism, and interdependence management for its target audience without resorting to formal supplier contracts (Thomas & Autio, 2019).
With a shared understanding and focal value proposition, Ethereum has positioned itself a keystone leader within its innovation ecosystem. First, Buterin created Ethereum based on shortfalls in Bitcoins design and developed Solidity for its eventual ecosystem members; value was created as a result. Secondly, Ethereum shares the value creation opportunity with its community members. For instance, Ethereum.org developed a public, open-source resource for the Ethereum community that anyone could contribute to. Ethereum began with a small, but dedicated, team who still maintains and develops its website, Ethereum.org; Ethereum.org is funded by the Ethereum Foundation. Ethereum’s growing ecosystem membership embraces the shared future of the innovation ecosystem. Ethereum strives to be the best portal for its growing community. To support its mission of being the best community for its members, Ethereum.org serves as an educational resource to help new users become familiar with Ethereum and its key concepts. Joint learning, therefore, is a benefit to its ecosystem members (Iansiti & Levien, 2004).
As a keystone leader, Ethereum must manage its innovation ecosystem dynamics which include, but not limited to coevolution, competition, emergence, and resilience. As Ethereum 2.0 adoption increases, member capabilities must coevolve around the innovation. Therefore, ecosystems participants must adjust their investments and choices over time to maintain complementarity with other participants, technologies, and institutions. Conversely, ecosystem leaders must also manage competition; ecosystem competition is not a zero-sum game where competitors compete for a market share. Instead, competition seeks to better meet the needs of ecosystem customers through renewal of focal value proposition. Consequentially, competition within the ecosystem may result in customer subsidization, varying openness of ecosystem to participants, varying levels of exclusivity, or platform envelopment over time (Moore, 1993; Thomas & Autio, 2019).
Ecosystem competition facilitates ecosystem emergence. A four-stage evolutionary model explains ecosystem creation which includes birth, expansion, leadership, and self-renewal. The four-stage evolutionary model can be used to explain the progression from a random collection of ad-hoc stakeholders, where all ecosystems begin, towards a coherently structured community driven by keystone leader who balances cooperative and competitive processes. Ecosystems, like Ethereum, must also remain resilient to external shocks and maintain its productive innovation potential. By virtue of relative absence of asset specificity and contractual relationships, innovation ecosystems, like Ethereum, are better positioned to exhibit resilience when compared to contractually underpinned, asset-specific supply chains (Thomas & Autio, 2019).
Keystone ecosystem leaders must successfully impart a shared vision coupled with a focal value proposition to better position itself over time. However, it is important that keystone leaders continue to co-evolve and renew focal value propositions through effective management of competition and market demands based on incentives and trust. As ecosystem competition increases, improvements in productive innovation capabilities will facilitate focal value proposition renewal and user experience improvements. Keystone leaders cannot control the ecosystem but must support adaptation, enablement, orchestration, and participation among ecosystem members (Moore, 1993; Thomas & Autio, 2019).
Adner, R. 2017. Ecosystem as structure: An actionable construct for strategy. Journal of Management, 43(1): 39–58.
Iansiti, M., & Levien, R. 2004. Strategy as ecology. Harvard Business Review, 82(3): 68–78, 126.
Moore, J. F. 1993. Predators and prey: A new ecology of competition. Harvard Business Review, 71(3): 75–86.
Thomas, L. D., & Autio, E. 2019. Innovation ecosystems. Available at SSRN 3476925.
