Cryptocurrency & Network Effects
https://www.aier.org/blog/how-important-are-bitcoin%E2%80%99s-network-effects
This article analyzes the rise of cryptocurrency and the competition between different digital currencies to rise to the top. There is predominant mental model that assumes that there will be a singular dominant cryptocurrency. The reason behind this can be contributed to network effects – the phenomenon where a good gains value as the number of users increase. There is no doubt that a currency’s value increases as it becomes more accepted by sellers. However, network effects either lead to a singular dominant winner or simply give an advantage to a market leader. One example of network effects leading to a definitive winner can be seen in the VCR market. Despite very few differences between the products themselves, VHS was able to edge out Betamax due to a concept called lock-in (once a consumer purchases one VCR, it is unlikely they would soon buy another one). On the other hand, social networks are an excellent example of network effects leading to a diverse market with a clear leader. Facebook has benefited immensely from network effects to become the most prevalent social media platform in the world. Nonetheless, other social media networks- such as Instagram, Twitter, and WhatsApp- whose purposes do not fully overlap with Facebook are also able to find success in their own right.
From our knowledge of network effects, it appears more likely that there will be a diverse market of cryptocurrencies. It is imperative to note that there are fundamental differences between the most recognizable cryptocurrencies. For example, while Bitcoin and Ethereum are both public blockchain networks, the former focuses on an electronic cash system while the latter involves running the code of any decentralized application. These distinctive features provide the opportunity for these two competitors to coexist within the market. Despite the single currency dominance of government regulated money, different businesses will likely be able to accept multiple types of cryptocurrency – further enhancing the competition within this sphere. With the endorsement of an expanding array of businesses, cryptocurrencies as a whole have become more predominant in usage. This can be witnessed in the rising number of unique users of cryptocurrency wallets (a majority of them being Bitcoin) in the relatively short period of seven years.
And as Bitcoin reaches a value of almost 10000 US Dollars, it is quite likely that this ascension will mark it as the leader of this diverse cryptocurrency market.