Bitcoin Killed The King & Now Network Effects Will Determine Its Future: From Winner Take All to Win and Help Win


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Aug 10, 2023

5 min read


Bitcoin Killed The King & Now Network Effects Will Determine Its Future: From Winner Take All to Win and Help Win


Money is a collective belief held by a lot of people, a distillation of shared confidence in the future. Historically, this belief was created and controlled by central authorities, with a hierarchical network structure. However, Bitcoin emerged as a decentralized network structure, replacing the need for a central authority. This shift from hierarchy to network has disrupted the traditional power dynamics and opened up new possibilities for cryptocurrencies. In this article, we will explore the network effects that determine the future of Bitcoin and how it relates to the concept of winner-takes-all in the digital space.

Hierarchy vs. Network:

Hierarchical networks rely on power, centralization, and enforcement through violence. They operate based on the belief in the authority of a king or central figure. In contrast, decentralized networks like Bitcoin thrive on flexibility, ubiquity, and self-healing capabilities. They do not rely on a single point of control but rather on the collective belief of the network participants. This fundamental difference in operating principles creates a clash between hierarchies and networks.

Belief Network Effect:

Bitcoin's value is derived from the belief network effect. The more people believe in its value, the more valuable it becomes. This belief network effect grew rapidly in the early days of Bitcoin when the concept of a decentralized ledger currency was novel and had little competition. As more people invested their belief in Bitcoin, its value increased, creating a self-fulfilling prophecy. The interconnectedness of the digital world has amplified the spread of beliefs, making the belief network effect even more powerful.

Protocol Network Effect:

The strength of Bitcoin's protocol network effect lies in the number of nodes connected to the network. As more nodes join the network, the effect becomes stronger. However, the protocol itself can impact the network's long-term survival. For example, if Bitcoin cannot adapt its protocol to address changing needs, it may struggle to maintain its position in the ecosystem. The choice between proof of work and proof of stake is a crucial factor in determining the strength of Bitcoin's protocol network effect.

Marketplace Network Effect:

Bitcoin has two forms of marketplace network effects: a speculation or "store of value" marketplace and a payments marketplace. However, the store-of-value marketplace network effect is relatively weak due to the emergence of other layer-1 protocols that offer liquidity and the ability to hold multiple currencies as a store of value. This weak network effect can limit Bitcoin's dominance in the marketplace.

Platform Network Effect:

The number of developers working on a platform is a valuable resource that strengthens the platform network effect. Bitcoin had 400 monthly active developers in late 2020, while Ethereum had 2,300. The more developers a platform attracts, the stronger its network effect becomes. However, Bitcoin's developer community might need to grow to compete with platforms like Ethereum.

Data Network Effects:

Bitcoin's blockchain creates two data network effects. First, it provides an immutable history of interrelationships that is hard to replicate. Second, as the chain of blocks grows longer, the network becomes more secure, increasing its value for all participants. These social network effects enhance the value of Bitcoin by influencing users' thoughts and choices.

Tribal Network Effects:

Bitcoin's tribal network effects stem from the emotional sense of belonging and identity it provides to its community. These effects create a powerful defensibility for Bitcoin against competitors. Being part of the Bitcoin tribe reinforces the belief in its value and strengthens the network effect.

Bandwagon Network Effects:

Bitcoin benefits from bandwagon network effects due to its worldwide brand and market cap. The bandwagon effect is strongest for Bitcoin compared to other cryptocurrencies with lesser brand recognition. This effect attracts more users to join the network, further strengthening its network effect.

Embedding and Brand Negative Scale Effects:

Bitcoin's embedding in exchanges and its use as a benchmark for calculating the value of other cryptocurrencies contribute to its network effect. Additionally, the negative scale effects, such as increased costs and slower transaction validation for miners as the network grows, can pose challenges to Bitcoin's network effect.

The Original Vision of the Internet:

The internet was initially seen as a great equalizer, democratizing wealth and access. However, it has amplified the inequities of the physical world. The rise of individualism on the internet challenges the traditional definition of talent and calls for a breakup with institutionalized standards. Ad-funded models and discriminatory platform algorithms hinder the empowerment of creators. Web3 technologies offer the potential for infinite remixability, granular distributions of value, and a shift towards creator empowerment.

Actionable Advice:

  • 1. Monitor the health of Bitcoin's network effects: To predict Bitcoin's future, it is crucial to understand and monitor the strength of each network effect. Stay informed about developments in the belief network effect, protocol network effect, marketplace network effect, platform network effect, data network effects, tribal network effects, and bandwagon network effects.
  • 2. Support creator empowerment: Shift away from ad-funded models and discriminatory platform algorithms. Explore new creator-centric business models that monetize based on intensity of fandom rather than size. Support Web3 technologies that enable creators to earn more of the value they create.
  • 3. Embrace the original ideals of the internet: Be an advocate for the win and help win philosophy. Support platforms and initiatives that prioritize user and creator empowerment, unconstrained by intermediaries. Foster an internet culture that values individuality and diverse definitions of talent.


Bitcoin's future hinges on the strength of its network effects. The belief network effect, protocol network effect, marketplace network effect, platform network effect, data network effects, tribal network effects, and bandwagon network effects all play a role in shaping Bitcoin's trajectory. Understanding and monitoring these network effects provide valuable insights into the potential value and challenges Bitcoin may face. By supporting creator empowerment and embracing the original ideals of the internet, we can contribute to a more equitable and inclusive digital space.

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