What is Metcalfe’s Law, and why does it matter? By Cointelegraph

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What is Metcalfe’s Law, and why does it matter?

Published Aug 02, 2023 03:28PM ET Updated Aug 02, 2023 05:00PM ET

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What is Metcalfe’s Law, and why does it matter?

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Yes, Metcalfe’s Law can help explain Bitcoin’s price formation — to some extent. It is relevant to Bitcoin since it implies that the value and utility of the Bitcoin network rise exponentially with its number of users and participants (holders, investors and traders).

The adoption of Bitcoin has been accompanied by a positive feedback cycle in which increased users have resulted in a rise in BTC’s value, drawing even more players. Bitcoin had a small user base in the early days, and its value was relatively low.

Network adoption and value

Decentralization

Network effects

Market valuation

Scalability and competition

Tokens and utility

Metcalfe’s Law highlights that the services, goods or advantages that utility tokens offer to their user base determine the value of those tokens. The token increases in value as more users decide that utilizing it is worthwhile.

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