LeoGlossary: Network Effect

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A phenomenon where a product or service goes in value as more people utilize it. This often occurs in an exponential manner.

For example, if one person has a telephone, it does not have much value. As soon as a second person is added, we see the value jump. This continues with each new phone added to the system.

Over time, when millions of people have a phone, the network effort generated something that is worth billions of dollars.

The process is faster within the digital world since there is less friction. Social media platforms become extremely valuable due to this. As more users signed up for a particular social media site, the appeal to others grew. This is how some ended up with more than a billion users.

We see a parallel with currency. One of the values of the USD is that it has the greatest network effect in the world. When compared to other currencies, the separation is evident.

This is one of the focuses of cryptocurrency. Proponents realize that success can only be achieved through the adoption of large number of users.


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