Does Metcalf's law apply to Bitcoin?

[Jet Cash]

Now that Bitcoin is being adopted by some of the major financial players, they are trying to apply some of their traditional concepts to it. Metcalf's law applies to the value of social networking and peer-to-peer communication networks, The Wikipedia article is here -
https://en.wikipedia.org/wiki/Metcalfe%27s_law

I don't really think it is applicable, but I'm not sure that I understand it completely. I'd be interested in some other opinions. For example, it seems to fail to take account of people like me who run two part time nodes, the different impact of miners, and users who have wallets with on-line services.

So does it apply to Bitcoin in some way, or should I forget about trying to understand it?

[1715508075]

1715508075

[MagicSmoker]

Network effect applies to anything which requires the active participation of other people to be useful. The example given in the Wiki entry for Metcalf's Law - that a fax machine is useless by itself - is just as applicable to Bitcoin; it has no value unless other people are willing to accept it as payment (or acquire it for speculation, etc.).

[BTCforJoe]

I had a lengthy conversation with some financial experts about this very matter, and concluded that it would be extremely difficult to apply Metcalf's law to Bitcoin, as there is no definitive way to gage Bitcoin's activity or adoption.

Considering that there are a lot of inactive addresses (addresses that have Bitcoin, but haven't had activity in them for a certain period of time), and addresses that may have 0.0000001BTC in them, what would be the basis of how many "users" that Bitcoin has?

We discussed maybe just counting wallets that have a minimum of 1mBTC in them... It would be amazing to see the true value of BTC based on Metcalf's Law, but to define the underlying scope of it is damn near impossible.

[Jet Cash]

That's really what I thought. There seem to be users who generate a new address for every received transaction.
The interesting thing for me would be to see a breakdown of the long term investors in Bitcoin. The people using Bitcoin for everyday transactions are important of course, but I think the long term investors are going to determine the future of Bitcoin. 'lost' or 'dead' Bitcoins tend to cloud the issue as well, so I don't see how we could discover enough info about HODLers to be able to analyse them.

[BTCforJoe]

Yeah, I honestly don't believe we can establish a similar gage of adoption as Metcalfe's law, given the anonymous nature of Bitcoin. It's so much easier for telecom companies, as they can track active user accounts or sales of physical products of mobiles and fax machines and whatever. With Bitcoin, it's just near impossible.

But man... If only this nut could be cracked!

[bigmelons25]

Metcalf's law has proven to be false repeatedly.  It's just a quack theory to overprice tech stocks.

[paxmao]

Now that Bitcoin is being adopted by some of the major financial players, they are trying to apply some of their traditional concepts to it. Metcalf's law applies to the value of social networking and peer-to-peer communication networks, The Wikipedia article is here -
https://en.wikipedia.org/wiki/Metcalfe%27s_law

I don't really think it is applicable, but I'm not sure that I understand it completely. I'd be interested in some other opinions. For example, it seems to fail to take account of people like me who run two part time nodes, the different impact of miners, and users who have wallets with on-line services.

So does it apply to Bitcoin in some way, or should I forget about trying to understand it?

Yes of course it does. It is in fact a basic reason of why bitcoin maintains a good market price. I wrote an article with that a while ago.

[paxmao]

Metcalf's law has proven to be false repeatedly.  It's just a quack theory to overprice tech stocks.

Any evidence? Because all the mobile phone industry growth proves you wrong, so you are going to need something more than that.

[r1s2g3]

Metcalf's law has proven to be false repeatedly.  It's just a quack theory to overprice tech stocks.

Any evidence? Because all the mobile phone industry growth proves you wrong, so you are going to need something more than that.

I think you are confusing number of connections can be created "between users" with number of  "Actual users".

If there are 4 users (A,B,C and D) then number of connections that can be made 6 (assuming connection is bi directional)
(A<=>B, A<=>C,A<=>D, B<=>C,B<=>D,C<=>D )

If user E join this network ,now only 1 new  user added but  number of connection that can be made now will be 10 (increase of 4 connection).


(A<=>B, A<=>C,A<=>D ,A<=>E, B<=>C,B<=>D,B<=>E, C<=>D,C<=>E, ,D<=>E  )

So in simple words I will say if "X" new user adopt bitcoin (with "Y" existing user base)  then  bitcoin adoption is increased only by "X" people only
 but number of connection (i.e transaction that can happen between user wallets,(assuming each user has 1 wallet) is increased by  [(X+Y)*(X+Y-1)/2] -[X*(X-1)/2]  = XY+Y²/2-Y/2.

If you are assuming mobile industry growth with number of connections available then you are right but if you are equate with revenue/profit generation then you are in wrong side.

[paxmao]

Metcalf's law has proven to be false repeatedly.  It's just a quack theory to overprice tech stocks.

Any evidence? Because all the mobile phone industry growth proves you wrong, so you are going to need something more than that.

I think you are confusing number of connections can be created "between users" with number of  "Actual users".

If there are 4 users (A,B,C and D) then number of connections that can be made 6 (assuming connection is bi directional)
(A<=>B, A<=>C,A<=>D, B<=>C,B<=>D,C<=>D )

If user E join this network ,now only 1 new  user added but  number of connection that can be made now will be 10 (increase of 4 connection).


(A<=>B, A<=>C,A<=>D ,A<=>E, B<=>C,B<=>D,B<=>E, C<=>D,C<=>E, ,D<=>E  )

So in simple words I will say if "X" new user adopt bitcoin (with "Y" existing user base)  then  bitcoin adoption is increased only by "X" people only
 but number of connection (i.e transaction that can happen between user wallets,(assuming each user has 1 wallet) is increased by  [(X+Y)*(X+Y-1)/2] -[X*(X-1)/2]  = XY+Y²/2-Y/2.

If you are assuming mobile industry growth with number of connections available then you are right but if you are equate with revenue/profit generation then you are in wrong side.

I am saying that the value of the network increases exponentially with new users. It is true for comms networks and that is also true for Bitcoin, as a network and there is no mistake nor confusion.

Now, it is true that not all users are of equal value. For example, there is a limited number of people that need to transact with me, but there are many that want to transact with Amazon. So Metcalf's Law can be made a bit more complex and a bit more accurate by saying that "big players" bring more value to the network.

[bigmelons25]

Bitcoin price is artifically pumped by tether. Tether are printing hundreds of millions everyday with nothing to back it.  They even state in their TOS they have no obligation to give usd for tethers. so USDT is esentially worthless.

[Jet Cash]

I still can't work out how to check if large numbers of coins are being sucked out of the Bitcoin economy, and held in long term storage. There seem to be a couple of companies who are prepared to buy Bitcoin for long(ish) term investors, and their minimum investment is $ half a million. This is taking Bitcoin into the world of gold and silver, and moving it away from PayPal. This makes the node interaction less important, as the purchasing agent will represent several of these big players.

[paxmao]

I still can't work out how to check if large numbers of coins are being sucked out of the Bitcoin economy, and held in long term storage. There seem to be a couple of companies who are prepared to buy Bitcoin for long(ish) term investors, and their minimum investment is $ half a million. This is taking Bitcoin into the world of gold and silver, and moving it away from PayPal. This makes the node interaction less important, as the purchasing agent will represent several of these big players.

I see. That's kind of a different question... I would think of an simple indicator such as daily volume / total marketcap of Bitcoin. It can be manipulated but it gives a quick idea of how much is being transacted versus how much is being stored. You could also made those simple indicators for a month and a year and then compare. Probably all historical data is easy to get from CMC.