Bitcoin and network effects
This article delves into how network effects can have an impact on the future of Bitcoin. Currency and finance has been the backbone of human evolution, and has been pivotal in changing how our society functions. In the past decade, with the advent of blockchain technology, a new decentralized currency, with the first being Bitcoin, has emerged. In 2017 alone, Bitcoin’s price has more than quadrupled, signaling the potential for Bitcoin to replace standard fiat currency. However, as mentioned in this article, the important thing to note here is network effects.
Network effects, as learned in class, shows us how the value of using/adopting a technology increases with the number of users who already use that technology. The article mentions VHS as being a prime example of how the value gained from network effects can overcome even technological disadvantages. With this in mind, it would be interesting to see how Bitcoin’s value will change as more and more people start to become aware of it. Bitcoin, being a type of currency at its foundation, will gain more value as more people invest in it. However, the article also mentions that blockchain technology, unlike other technologies like the VHS, have a very low fixed cost, and is thus easy to enter the market. This is certainly true, as we can see from the emergence of a variety of alt-coins in the past year.
The important takeaway here is to see how network effects is driving up the price of Bitcoin. Even recently, the announcement that the smart-transaction company Square was going to start accepting Bitcoins drove the price of Bitcoin upwards. This clearly shows network effects in action, where the more people use Bitcoin, the more that people will find value in it, and the more that others will be influenced to join in.
https://www.aier.org/blog/how-important-are-bitcoin’s-network-effects