I take longer these days to write because I have to look up almost every not-so-common word or phrase I use in my content to ensure I'm not misrepresenting anything.
This is not an attempt at perfectionism but simply an act set in place to avoid misleading readers.
How often have you heard or seen the usage of the phrase “Network Effect”?
For those of you who have, I know one thing comes to mind - Bitcoin!
Yes, people talk about it a lot but they fail to understand one thing - scarcity doesn't necessarily birth “value” - in most cases, scarcity equals limitations and a potential long line of flaws.
Nature quite literally teaches us this.
Why do “financial experts” suddenly believe that a scarce currency is economically viable?
First off
What's the Network Effect?
The network effect is a phenomenon where the value of a product or service increases as more people use it. As the user base grows, there are more opportunities for interactions, which can lead to increased benefits and positive outcomes for each user.
The network effect is also a central concept in the world of cryptocurrency. In general, it means that a cryptocurrency’s value rises as more people use it. This is because a larger user base results in higher liquidity and trading volume, which increases acceptance and utilization.
For instance, the enormous and expanding user base of the Bitcoin network creates a powerful network effect that has increased its market acceptability, liquidity and value. A self-reinforcing cycle develops when more people use Bitcoin because it becomes more valuable to each individual user as more people use it.
I acknowledge that the value of any network increases with more users but the praises poured on this “network effect” simply ignores one reality:
Bitcoin's economic design is self-destructive in some way but not everyone will tell you this.
When people like us say this, generally every newbie thinks we hate Bitcoin. No darling, we are simply pointing out the flaws. This does not mean I'm not invested in Bitcoin, but if you are invested in it, you should at least know about its shortcomings.
If you're investing simply to make a profit and cash in, congratulations, you like many maxis out there but they won't tell you their true intentions - cashing in.
They all sing their hates for the dollar and how bitcoin is going to take over but consistently defines their wealth in USD and speculates how high - in USD - Bitcoin is going to climb in future.
Ain't that comical?
Lamborghini Countach LPI 800-4 is reported valued at $2.64 Million, does that make it better than USD in any way?
Bitcoin = Product
Bitcoin ≠ Currency
Back to Bitcoin's economic design. The one thing the network effect doesn't teach is the cost that follows every growth.
Visa can reported handle about 39,000,000 transactions(possibly less) every 10 minutes, how many can bitcoin handle?
If you look at this block
https://www.blockchain.com/explorer/blocks/btc/823158
You'd find under 5,000 transactions that cost over $74,000 to process. Sure, this is good for miners but what about users? Is this a network viable for wide economic use?
The more users the network has, the higher the cost goes up for the next user - such network effect is really just systematic flaws building up.
We've seen similar chains battle this - ETH and apparently layer 2 blockchains will solve that but that's the thing, they won't!
Back to Bitcoin.
The Lightning Network Isn't exactly a solution even if it was free, you know why?
How can you realistically build something cheap and better right ontop the thing of high cost?
It's pretty delusional to me if anyone thinks that can scale because the fundamental structure will always find ways to make you bend and increase your service cost so they can benefit - as usual.
I plan on writing a separate post on why lightning won't save bitcoin but here's a question that may give you an insight on why lighting is still quite flawed:
All lightning network transfers need to be settled on the Bitcoin network eventually, so how would miners profit if lightning gains mass adoption?
Wanna bet miners won't sit around and allow that?
It's either LN operators bend and increase cost that rewards miners and themselves or miners up and leave and bitcoin gets attacked!
More on this soon. It's important to note that this is not a hate article, we can only scale as a community if we acknowledge our flaws and work on solutions, not cover them up and play pretence.
The Bitcoin network effect is both a blessing and a curse to those already there, to those just entering and those yet to come.
Posted Using InLeo Alpha