Metcalfe’s Law

Metcalfe’s Law is a concept used in computer networks and telecommunications to represent the value of a network. Metcalfe’s Law states that a network’s impact is the square of the number of nodes in the network. Metcalfe’s Law is related to the fact that the number of unique possible connections in a network of nodes can be expressed mathematically as the triangular number n ( n − 1 ) / 2, which is asymptotically proportional to .

First formulated in this form by George Gilder in 1993, and attributed to Robert Metcalfe in regard to Ethernet, Metcalfe’s law was originally presented, c. 1980, not in terms of users, but rather of “compatible communicating devices” (e.g., fax machines, telephones). Only later with the globalization of the Internet did this law carry over to users and networks as its original intent was to describe Ethernet connections.

In a working 2019 paper, Timothy Peterson linked time-value-of-money concepts to Metcalfe value using Bitcoin and Facebook as numerical examples of the proof and in 2018 applied Metcalfe’s law to Bitcoin, showing that over 70% of the variance in Bitcoin value was explained by applying Metcalfe’s law to increases in Bitcoin network size.

Timestamps:
0:00​ Metcalfe’s Law and Network Effects
3:22​ Research and Academic Studies
4:15​ Direct Network Effects
5:03​ Indirect Network Effects
6:15​ Network Effects for Investing
7:23​ Network Effects for Crypto
8:17​ Application of Metcalfe’s Law for Crypto