A network effect is when a product, service or system becomes more useful the more people use it. The first telephone was useless, because nobody else had one. Every new user made the phone more valuable to everyone else. The same is true of languages, social media, payment cards and money.
Network effects in money
Money may be the clearest example. A currency is useful because other people accept it. The more people use it, the easier it is to pay with, save in and exchange for other things. That is why it is hard for a new currency to gain a foothold, even if it is better in some ways.
The American engineer Robert Metcalfe proposed that the value of a telecommunications network grows with the number of possible connections, roughly the square of the number of users. The rule is a rough approximation, but it captures the idea well.
Bitcoin's network effects
Many people see network effects as one of the main reasons BitcoinBitcoinThe first and largest cryptocurrency: a digital currency that no single party controls, with a fixed limit of 21 million coins. has been the largest cryptocurrency ever since 2009. They show up in several ways:
- Users. Millions of people around the world own bitcoin, and the more people own it, the more accept it.
- LiquidityLiquidityHow easily an asset can be bought or sold quickly at a fair price, without the trade moving the price much.. Heavy trading makes it easy to buy and sell at a fair price.
- Security. The more people run nodesNodeA computer that runs a crypto network's software, keeps a copy of the blockchain and checks that new transactions and blocks follow the rules. and mine, the harder the network is to attack.
- Infrastructure. Developers, exchanges, wallets and exchange-traded funds build on Bitcoin, which draws in more people.
Network effects aren't permanent, though. MySpace was the world's largest social network until its users moved to Facebook. Critics argue the same could happen in crypto. Bitcoin's supporters reply that its fixed supply, track record and DecentralisationDecentralisationWhen power and responsibility are spread across many participants, instead of one bank, company or government controlling a system. are hard to copy. The arguments are set out in Why does Bitcoin have value?
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 2 November 2026.