A network effect is when a product or service increases in value the more people use it. Bitcoin, a strong network effect.
A network effect is when a product becomes more valuable as more people use it. Do you remember Orkut? Well, it was shut down because not many people were using it anymore. Why not? Well, because not many people were using it anymore. Sure, there are other factors at play, but since it had so few users, it had little value as a service.
In some cases, technologically inferior projects capture the bulk of market share simply because they were available at the right time. This is where network effects have a significant impact.A network effect is an economic effect that describes a product or service where additional users add value to the network. When a network effect is present, each new user adds value to the product by entering the network.
Direct network effects are what we’ve just discussed with the telephone. Increased usage adds value for all other users. Another good example of network effects is ridesharing. The network effects that Uber or Lyft have built up over the years are difficult to compete with for newer services with a smaller user base.
With that said, this isn’t only a result of Bitcoin’s network effects. Thanks to its fair launch, Bitcoin has inherently unique properties that would be extremely difficult to replicate in the first place. Think of this example more as a thought experiment.
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