What is Network Effect?

Those of you familiar with computer science already know the power of network effect. It’s why we still use old internet protocols like TCP/IP even though computer scientists can build something better. For the rest of us it’s easier to explain “network effect” with popular social media sites like Facebook.

Why is Facebook a multi billion dollar company?

  • It’s not because their technology is hard to replicate. You could hire a handful of undergrads from a Computer Science school and they could make something similar to Facebook.
  • It’s not because their technology is the best in the world. There are other social media sites that have better technology and no one thinks of Facebook as “cutting edge”.
  • It’s not because they offer the best social media platform. Many people prefer Instagram, Snapchat, Twitter, and a variety of other social media platforms.

What makes Facebook so powerful is that billions of people are on Facebook.

  • Do you want to see your nephew’s baby photos? They are on Facebook.
  • Do you want to catch up with your old friend from high school? They are on Facebook.
  • Do you want to join a cryptocurrency club? They are on Facebook.

Everyone is already on Facebook and this is why everyone continues to use it, join it and develop it’s business. This is the magic of network effect.

Bitcoins

Bitcoin and Network Effect

Bitcoin is the dominant cryptocurrency largely because of it’s network effect. Bitcoin has the most users, developers, merchants, and institutional investors. This is one of the reasons why Bitcoin is the most expensive cryptocurrency and has the highest market cap (the other reason is it’s low supply). When someone new enters cryptocurrency the first coin they buy is Bitcoin and sometimes it’s the only coin.

This is also why crypto holders want more people to join the crypto movement. It’s not because it’s a pyramid scheme; it’s because more people equals a more powerful network effect. And a powerful network effect is good for everyone.

If you are interested in learning more about Bitcoin and other cryptocurrencies you should check out the OKEx Academy. The OKEx Academy has everything from introductions to cryptocurrency to updates on the latest cryptocurrency news. If you are new to cryptocurrency or just want to brush up on a few concepts check it out today.


was originally published in OKEx Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.