"Bitcoin's Future: Network Effects and the Accelerating Fall of the World"


Hatched by Glasp

Aug 30, 2023

3 min read


"Bitcoin's Future: Network Effects and the Accelerating Fall of the World"

Money, in its essence, is a collective belief held by a large number of people. It represents a shared confidence in the future. Throughout history, this belief has been established and maintained through hierarchical structures, with an alpha King at the top. The King issues a currency, and people believe in it because of the centralization of decision-making, the longevity and predictability of the hierarchy, the ability to enforce behavior through violence, and the tax base of the people within the hierarchy.

However, Bitcoin disrupts this traditional model. It operates on a decentralized network structure, devoid of a central authority. Bitcoin killed the king and replaced it with a network. The belief in decentralized cryptocurrencies stems from their decentralization, software-encoded rules that are hard to change, ubiquity, and resiliency. Hierarchical networks rely on power, while decentralized networks rely on flexibility and ubiquity.

The fight between hierarchies and networks continues, but the rise of the Internet and blockchain technologies has tipped the scales in favor of decentralized networks. The belief network effect, which was previously limited by geographical boundaries, now spreads faster and wider due to increased connectivity. Bitcoin's current and future value lies in its network effects, and understanding and monitoring these effects is crucial in predicting its future.

There are four defensibilities native to the digital age that Bitcoin can leverage: network effects, brand, scale, and embedding. Network effects, which are based on the belief in Bitcoin's value, have been instrumental in its success. It has a strong protocol network effect, with the number of nodes contributing to its strength. Bitcoin also operates in two forms of marketplace network effects: a speculation/store of value marketplace and a payments marketplace. Additionally, the platform network effect, driven by developers, adds value to Bitcoin.

Data network effects are another key aspect of Bitcoin's value. The immutable history it creates and the increasing security as the chain of blocks grows make it an attractive proposition. Social network effects, such as tribal and bandwagon effects, further contribute to Bitcoin's defensibility.

However, there are external forces that could impact Bitcoin's success. The authenticity of transactions on the blockchain, the responsiveness of the Bitcoin DAO, and government intervention are factors to consider. Governments, particularly those with leading fiat currencies, have a lot to lose from the rise of cryptocurrencies. While it may be too late for them to stop Bitcoin, they could employ strategies to suppress its growth.

To ensure Bitcoin's future success, it is essential to focus on three actionable pieces of advice:

  • 1. Monitor and strengthen the belief network effect: Continuously work on building and reinforcing the belief in Bitcoin's value. Engage with the community, provide education, and foster trust.
  • 2. Foster developer engagement: Developers are a valuable resource for any platform. Encourage more developers to contribute to the Bitcoin network, creating a robust platform network effect.
  • 3. Drive adoption through embedding and partnerships: Seek opportunities to embed Bitcoin in existing infrastructure, such as payment systems and e-commerce platforms. Collaborate with merchants and governments to integrate Bitcoin into their operations.

In conclusion, Bitcoin's future hinges on its network effects. By understanding and nurturing these effects, while also addressing external challenges, Bitcoin can solidify its position as a leading decentralized cryptocurrency. The world is falling, but by embracing the direction of this fall and leveraging the power of network effects, Bitcoin can thrive in the digital age.

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