Bitcoin has a network effect. Many crypto evangelists assert that the network effect of Bitcoin is so strong that hyperbitcoinization is inevitable. B

On the Network Effects of Stores of Value - Multicoin Capital

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2021-05-29 03:30:05

Bitcoin has a network effect. Many crypto evangelists assert that the network effect of Bitcoin is so strong that hyperbitcoinization is inevitable.

But this is not quite right. Bitcoin’s network effect as digital gold is not what many assert that it is. Network effects are nuanced, and generally misunderstood.

In this essay, I’ll explore the network effects of Bitcoin as digital gold, and as digital cash. I’ll also explore other competitive moats that are not network effects.

For general background, I recommend this Medium post, this a16z slideshow, this Techstars post, and this post on data network effects. For longer-form reading on network effects and technology platforms more generally, I recommend Platform Scale and books by the author Sangeet Choudary.

Direct network effects work because existing users gain the option to interact with an increasing number of people as the underlying product/service is adopted. Basically all closed-loop communication networks exhibit this type of network effect, including Internet-based services such as Facebook and Whatsapp.