TD₿: Analyzing Bitcoin's Network Effect by Lyn Alden
TL;DR Bitcoin's monetization will continue to occur as more and more users begin to leverage the network for different reasons.
Hey Bitcoiners,
If I could pass along one idea right now to someone struggling to understand Bitcoin, it is this…Bitcoin is a network.
And because Bitcoin is a network, it has network effects in that the more users that begin to use and leverage the Bitcoin network, the more valuable the network itself becomes. This concept is known as Metcalfe’s Law.
Bitcoin’s network effect has been gradually gaining steam in the first 14 years of its life. As a result, we have seen bitcoin, the asset, grow from a toy thing being sent back and forth through cyberspace by a few hobbyists, to now an aspiring global store of value adopted by millions with a market capitalization in the hundreds of billions of dollars.
But Bitcoin’s network effect is not just about increasing the number of hodlers using bitcoin to store their wealth in a censorship-resistant, undebaseable money. It is actively occurring on multiple fronts. For example, it’s happening at the merchant level as more merchants adopt Bitcoin, at the developer level as more shadowy super coders work on it, and at the security level as more hash rate comes online as miners are attracted to it.
As Bitcoin seeps into the mindshare of society, it will continue to attract new users of all kinds and suck the wealth out of other asset classes, strengthening its network effect even further. This is the positive reinforcing feedback loop of the Bitcoin network.
Lyn Alden wrote this in-depth article that thoroughly analyzes Bitcoin’s Network Effect (03/01/2021)
Bitcoin’s network effect is an important reason why it will likely continue to attract users and gain value over time, as well as why it is so difficult to replicate.
How does another cryptocurrency replicate the organic grassroots adoption that Bitcoin has experienced? How does another cryptocurrency replicate all the years that Bitcoin has survived, and all the obstacles it has overcome while functioning with 99.9% uptime? How does another cryptocurrency replicate all the individuals, entrepreneurs, products, services, and infrastructure that now make up the Bitcoin ecosystem?
The answer to all those questions is…Bitcoin’s network effect can’t be copied.
At this point, Bitcoin’s network effect is like a snowball rolling downhill, gathering steam, and growing ever larger with every successful block that’s mined.
Tick tock next block,
Sam Callahan
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Meme of the Day
Yes, number of (active) users is what brings value to a network and if the users are enough it becomes unstoppable.
That's exactly why they limited the Bitcoin block size to a ludicrous low amount: to limit the maximum number of active users and hence its growth.
If the block size is not lifted Bitcoin will fail because of its limited capacity: the world needs it and people will be forced to use a more scalable alternative without an artificial limit.