Metcalfe's law
Metcalfe’s law, the bitcoin, the ethereum and their value. I am a Data Scientist student and I took a course with Dr. Fragkiskos Papadopoulos on Network Science. I know a little bit about everything regarding network science and today I will talk to you about the basics to calculate Metcalfe’s law on your own and track bitcoin but also any other coin you want like ethereum and their network value.
Metcalfe’s law states that the value of a network is proportional to the square of the number of its nodes, i.e. N². Formulated around 1980 in the context of communication devices by Robert M. Metcalfe, the idea behind Metcalfe’s law is that the more individuals use a network, the more valuable it becomes. Indeed, the more of your friends use email, the more valuable the service is to you.
During the Internet boom of the late 1990s Metcalfe’s law was frequently used to offer a quantitative valuation for Internet companies. It suggested that the value of a service is proportional to the number of connections it can create, which is the square of the number of its users. In contrast the cost grows only linearly with N. Hence if the service attracts sufficient number of users, it will inevitably become profitable, as N² will surpass N at some large N (Figure 1). Metcalfe’s Law therefore supported a “build it and they will come” mentality , offering credibility to growth over profits.
Metcalfe’s law is based on (2.12), telling us that if all links of a communication network with N users are equally valuable, the total value of the network is proportional to N(N - 1)/2, that is, roughly, N². If a network has N = 10 consumers, there are Lmax = 45 different possible connections between them. If the network doubles in size to N = 20, the number of connections doesn’t merely double but roughly quadruples to 190, a phenomenon called network externality in economics.
Two issues limit the validity of Metcalfe’s law:
(a) Most real networks are sparse, which means that only a very small fraction of the links are present. Hence the value of the network does not grow like N2, but increases only linearly with N.
(b) As the links have weights, not all links are of equal value. Some links are used heavily while the vast majority of links are rarely utilized.
According to Metcalfe’s law the cost of network based services increases linearly with the number of nodes (users or devices). In contrast the benefits or income are driven by the number of links Lmax the technology makes possible, which grows like N² according to (2.12). Hence once the number of users or devices exceeds some critical mass, the technology becomes profitable.
There is also one website with an alpha version software. Modeling a market price. A simple linear model, in alpha version but for education purposes only. Because steemit deleted once my post because I posted one link I am not doing it again. I didn't know I wasn't able to do it, on minds you can act with more freedom but that's not the case. The company name is Worldbitcoinnetwork.
One FundStat cofounder, Tom Lee says "If you build a very simple model valuing bitcoin as the square function number of users times the average transaction value, 94% of the bitcoin movement over the past four years is explained by that equation.".
So by this we understand that if you double the number of users, you are more than doubling the value". A recent study even approves this. Metcafe's law states that the value of a telecommunications network is proportional to the square of the number of users of the system but are engaged in transactions on the network each day. We are all nodes in network science. For example 300000 transactions a day therefore the price that is risen to approximately by ten times. There are many ICOs accepting Ethereum instead of bitcoin just to know and because it's easier for new projects in the blockchain technology. One example of ICO that accepts Ethereum coin is BitDegree, a blockchain for education like coursera.
This is a fancy chart of the unpredictable future.
The price of bitcoin compared with the projected value of bitcoin. Based on the FundStrat model.Bitcoin may be a bubble no one knows but if the number of transactions as a proxy for the number of users or the number of projects or all together increases then we may have to look our wallets for an increase of the ethereum coin.
The same can happen in reverse, all traders must be careful for both ICOs and the cryptocurrency itself.
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References:
- G. Gilder. Metcalfe’s law and legacy. Forbes ASAP, 1993
- K.-I. Goh, M. E. Cusick, D. Valle, B. Childs, M. Vidal, and A.-L. Barabási. The human disease network. PNAS, 104:8685–8690, 2007
- K. Börner. Atlas of Science: Visualizing What We Know. The MIT Press, 2010
- B. Briscoe, A. Odlyzko, and B. Tilly. Metcalfe’s law is wrong. IEEE Spectrum, 43:34–39, 2006
- https://bitnewsbot.com/bitcoin-and-ethereum-follow-metcalfes-law-of-network-effects-new-study-says ,2017
- http://www.businessinsider.com/bitcoin-price-movement-explained-by-one-equation-fundstrat-tom-lee-metcalf-law-network-effect-2017-10 ,2017
- H.U. Obrist. Mapping it out: An alternative atlas of contemporary cartographies. Thames and Hudson, London, 2014
- Acknowledgements: Dr. Fragkiskos Papadopoulos is an Assistant Professor of the Department of Electrical Engineering, Computer Engineering and Informatics at Cyprus University of Technology. I want to make clear that I have not asked for help because I was satisfied with the course I took last year. I hope all the information here is correct. You can see references for more information. https://www.cut.ac.cy/eecei/staff/f.papadopoulos/ as Reference and related work on Network Science.