4 min read

Network Effects: Signed, Sealed, Delivered

Trust The Medium The White House has hosted 1,000's of events in its lifetime (concerts, funerals, galas,etc.). Most uncharacteristic perhaps, was a series of séances in the 1860's. First Lady Mary Todd Lincoln was grief-stricken and desperate for solace after the death of her son Willie. A growing
Network Effects: Signed, Sealed, Delivered

Trust The Medium

The White House has hosted 1,000's of events in its lifetime (concerts, funerals, galas,etc.). Most uncharacteristic perhaps, was a series of séances in the 1860's.

First Lady Mary Todd Lincoln was grief-stricken and desperate for solace after the death of her son Willie. A growing spiritualism movement within the United States offered the hope she was looking for.

The First Lady invited a group of mediums to 1600 Pennsylvania Avenue in order to open a channel of communication with Willie from beyond the grave. She believed these spirtual translators were able to traverse between the living and the dead.

“Willie Lives. He comes to me every night and stands at the foot of the bed with the same sweet adorable smile that he always has had."

As we can see, the accuracy and authenticity of any form of communication is inextricably tied to the medium through which it passes.


[This edition will focus on the Bitcoin network.]

Let's explore what a network actually is, one step at a time.

1.Medium

Sending and recieving information across distance (or worlds) requires some kind of conduit to transport it, much the same way a boat requires water to move through.

2.Nodes

When individual participants utilize a common medium for communication, they may be somewhat compatible with one another and possess the ability to connect, forming paths.

The role or function of each connected participant may vary (transmitting, receiving, relaying, creating, validating, etc.), and enable information to travel further, faster and with integrity.

3.Networks

The structure formed when nodes are connected by, and interact through, a common medium is a telecommunications network.

"Bitcoin is a global telecommunications network that secures financial information." -Meltem Demirors
Map of Reachable Bitcoin Nodes (via Bitnodes.io)

4.Verification

Using networks to relay information when a direct channel with the recipient isn't feasible is an essential part of modern telecommunication networks. However, some kind of check is required to ensure that a message was a) actually from the recipient claimed, and b) delivered as intended, without tampering.

Similarly, nodes must be incentivized to relay a message and potentially punished for malicious behavior. This is an essential feature of the Bitcoin protocol.

5.Rules

For telecommunications networks to function, standards need to be established for purpose of compatibility. These can be implicit or explicit depending on the nature of the network.

Bitcoin's protocol rules clearly and publicly define the standards for things such as how blocks must be structured and how transactions are verified.

6.Adoption

The network protocols that eventually become mainstays earn their place by giving users (human or computer) greater means of expression, fidelity, efficiency or reach in their ability to communicate.

Additionally, protocols that are simple in their design and easy to replicate afford resiliency, making them difficult to supress.

7.Utility

As the number of participants increase, the utility of the network grows disproportionately with each additional user. The equation for representing this phenomena is known as Metcalfe's Law.

8.Convergence

Converging on a standard set of rules for communicating is a naturally occurring phenomena, due to the opportunities and benefits afforded to participants that come with being connected to the largest group.

These network effects continue to compound as participants become locked-in, resulting in winner-take-most outcomes.

"Network effects are very different from the economies of scale which traditionally drove power." -Jeff Booth
Winner-Take-Most

The Age of Dominant Digital Networks

Bitcoin's genius design turned pure information into a scarce asset that we have assigned value to. Its network and rules allows us to create, transfer and validate this value.

The most powerful networks of the Digital Age have all dematerialized some fundmental good or service into digital form. A pattern has emerged in that size begets size, once a clear leader is established.

"There's never been an example of a $100B monster digital network that was vanquished once it got to that dominant position. Bitcoin is the monetary network." -Michael Saylor
Dominant Digital Networks