What is Bitcoin network effect?
The Bitcoin network effect tells us that the more people join and use its network, the more valuable it becomes. When it comes to analyzing the value of Bitcoin, or any other cryptocurrency, it is important to take the network effect into consideration.
Since the blockchain and the money that this type of network creates becomes more useful to the people who use it as others join, looking at Bitcoin through this effect can be very interesting. Especially when you hear comments that Bitcoin has no backing or intrinsic value.
Bitcoin network effect
What are network effects? The network effect is a phenomenon that tells us about the increased value of the network for all users when a new one joins it. For example, we have social networks, which become more useful as more people join them. Because there are other users using it, it is easier to find friends, family or other users that we may be interested in and with whom we would like to interact.
This effect is generally positive since each new user increases the value of the network for others. On the other hand, with each new person that participates in this network, it becomes more attractive for others to join it.
This is why Bitcoin is not a Ponzi scheme. Ponzi schemes and pyramid schemes are different types of scams, but they have one thing in common: those who enter the scheme first make profits, and those who last lose their money. In all pyramids, the “first-born” earn precisely at the expense of all new participants. Earnings are always amazingly large and grow exponentially.
For the reason that Bitcoin’s value has skyrocketed since its debut in 2011, it seems to fall under the definition of a pyramid scheme. But if this is so, then in this case, and in general, all new technologies fall under it. In fact, in the case of Bitcoin, the situation is quite unique: we have the opportunity to invest in this technology and reap the rewards along with its growing adoption by the masses.
Imagine if you had the opportunity to invest in the concept of email in 1965, when some smart MIT hacker found a way to send messages on primitive multi-user computer systems. Back then, it seemed practically useless, but today, the owner of a tiny percentage of the rights to the email concept would be fabulously rich.
Technology development always follows the well-known adoption curve, which includes a period of exponential growth. And Bitcoin is no exception. The fundamental difference is that Ponzi schemes and pyramid schemes only create value for the oldest investors by simply redistributing money from new participants. No economic component. Just plain theft.
Bitcoin, on the other hand, creates value for both early investors and new ones by providing more and more opportunities to use the currency, which, moreover, is limited in quantity. This is not cheating or theft, but simply the good old law of supply and demand in action, or in other words, an ancient economic principle in the service of the newest monetary system.
The BTC network effect is based precisely on how the connectivity between users grows in a network, technology, service or product, as their number also increases. But, of course, the growth of the user base depends on how well the technology can be used and how it meets the specific needs of its users.
Bitcoin has achieved greater usability by becoming a more complex structure than it seems, creating multiple levels of connectivity in the network from several interactive layers.
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