The argument for Bitcoin through Metcalf’s law

The argument

The argument applies a general principle about networks to Bitcoin specifically. A telephone is worthless if only one person has one, and of very limited use if only two people do, because its entire value lies in whom it can reach. If everyone in the world has a telephone, the same device becomes extremely valuable. The value therefore does not reside in the object but in the size of the network it connects to, and it grows as that network grows. Proponents argue that Bitcoin has the same structure. A currency and a store of value are both network goods: a currency is useful in proportion to how many counterparties will accept it, and a store of value depends on there being a deep market of people prepared to hold and trade it. As more users buy Bitcoin and use it in either capacity, the utility of Bitcoin to every existing holder increases, without anything about the protocol itself having changed. The claim is presented as empirical rather than merely analogical. Ninety-four per cent of Bitcoin's increase in value since 2014 is attributed directly to the principles of Metcalfe's law and the expansion in user volume, which proponents take as evidence that the price history has been driven by network growth rather than by sentiment or speculation detached from adoption. If that attribution holds, the price is tracking a measurable quantity with a known mechanism behind it. The conclusion is accordingly conditional on continued adoption rather than open-ended. Provided the number of users keeps increasing, Bitcoin will remain a prominent and desirable currency, because each additional participant raises its usefulness to everyone already holding it. On this account the case for Bitcoin as the future rests on the same logic that made the telephone network valuable, applied to a monetary network instead.

Context

Metcalf’s law dictates that the value of a network is dependent on the number of users in that network.

Premises

Counter-arguments

Bitcoin use is not increasing. It peaked when the cryptocurrency bubble was in full swing in 2017. However, now, the number of people using Bitcoin, both as a liquid currency and investment tool, is plateauing at best, and decreasing in some cases. Many retailers that used to offer Bitcoin as a payment option have since abandoned the idea. Of those that kept it, a large portion report that almost nobody uses the currency.

Rejecting the premises

[Rejecting P2] The number of Bitcoin users is not increasing.