Bitcoin’s Rise is a Model for Cascading Behavior
http://www.nasdaq.com/article/bitcoin-hits-new-high-on-wider-acceptance-cm882683
Bitcoin, the most well-known of “cryptocurrencies,” recently hit a record high valuation of $10,000 per coin. The currency has had a long and shaky journey to this point – created in 2009 by an enigmatic “Satoshi Nakamoto,” the currency has for much of its lifespan been a mysterious, and at times notorious, concept. Given its crypto nature and focus on anonymity and customer protection, it has at times been a preferred transactional tool for criminals, however, in recent years its popularity and legitimacy has grown among the public. Big name companies like Expedia, Starbucks, and DISH Network now accept bitcoin, among thousands of other companies. With its growing popularity (and consequently its soaring valuation), it has evolved from a fringe interest to a very publicly appealing option, being sought after by investors and customers alike. According to this article, there has been a recent surge in online retail transactions this holiday season, driving its popularity and economic value growth.
I think Bitcoin is an interesting study of cascading behavior in networks, and it is fascinating to see a brand new currency come into legitimacy and value. This is a special case to study – consider that the currencies we have used most of our lives were well established long before our time. We had no opportunity to participate in a cascade, since acceptance of the physical currencies we are familiar with is so universal that their adoption was a given. However, the growth of Bitcoin and other cryptocurrencies allow us to see and study the threshold for adoption in a society for a new currency. We also get to see how payoffs are being calculated in a sort of network coordination game. It is clear that as more and more people adopt Bitcoin, there is some threshold that is being used to make this decision, and it may differ for each adopter. The adopters closest to those initial users clearly had a lower threshold and were eager to adopt Bitcoin, given that no major businesses were quick to endorse Bitcoin on its onset. However, now that more businesses have gotten onboard, more people are adopting the currency. It is fascinating to be able to see this unfold and to observe how this threshold differs among the population. This is an excellent model for studying cascading behavior.