The Value Of Bitcoin’s ‘Network Effect’ Has Substantial Upside
In essence, the value of both gold and bitcoin comes from their so-called ‘network effect’. A network effect creates a self-reinforcing cycle of value where each new user makes the network more valuable for everyone.
In the case of both gold and bitcoin, their network effect come from the collective belief that they are the non-confiscatable assets to own in a fiat monetary system. And that a certain proportion of total wealth must be held in these non-confiscatable assets as an insurance against hyperinflation, banking system failure, or state expropriation.
You might ask, what is the difference between a network effect based on collective belief and a Ponzi Scheme? The answer is that a Ponzi Scheme relies on an exponential growth of its network on a promise to get-rich-quick. Once that exponential growth ends, as it must, the value of the network collapses.