


The greater the number of users of a particular product, the more value it tends to attain. This takes a good understanding and application of the “Network Effect” concept.
Introduction to Crypto Networks
We live in a world where the use and adoption of cryptocurrencies are rising rapidly. With over 4000 cryptocurrencies available, there is always a fight for supremacy.
To make their projects the best and most sought-after, developers go the extra mile to incorporate innovative features/utility into them. That alone may not impact the sale or adoption of their cryptocurrencies as there is more to it.
It is the less developed cryptocurrencies that quickly gain traction. With unique characteristics, they take the market by storm. They win the hearts of cryptocurrency enthusiasts in the process, and subsequently, their value increases. How does this happen? One sensible answer to this question is the network effect. Let us explain how this phenomenon affects the entire market.
What is Network Effect?

A network effect refers to how the number of individuals using a particular product affects its value. As the number of users of a specific product increases, the value tends to increase as well. The network effect is also referred to as network externality.
Whenever a new user adopts a given product, such a product’s value or utility tends to increase. A user’s adoption will increase the product’s value for pre-existing users and draw other people’s attention. The process by which users’ addition to a product increases its value is referred to as the “total effect.” The addition of users that causes non-users to have an interest in having the product is known as the “marginal effect.”
One of the largest and best explanations of a network effect is the stock exchange. Network effects can be seen in the volatility of the stock market. Prices of stocks are heavily dependent on the demand of users. When users don’t show interest in a given stock, the price drops, attracting many investors in the process as it is traditional to buy the dip.
Upon investment, the number of users increases because the price steadily increases. However, a decline is seen when people begin to sell off because of the increased price. As such, prices eventually drop yet again. The network effect is observed when the activity of investors causes people to profit from the price increase.
Economic Importance of Network Effect

As the number of users of a given product increases, market sales are affected positively. If the price of goods and services are lower than the value they bring, the number of consumers will increase rapidly. A network effect is generally perfect for the economy.
There are several ways businesses can leverage network effects to attract several users. Common tactics are rebates or discounts, free trials, etc. The adoption of Airdrops is a common way of attracting users in the crypto market.
The Problem of Network Effects
The network effect may be problematic when the addition of new users causes the reduction of value. This is often seen in blockchain technology. It is expected that a good network should attract investors. However, when investors are attracted, instead of the network’s value increasing, it declines surprisingly.

Ethereum’s gas fees are a typical example. It was designed for users to bid on transaction throughput. This bid is used as payment to miners of Ethereum for verifying transactions. The addition of users into the Ethereum network led to an increase in gas fees. This is because users of the network tend to outbid themselves. As the gas fees increased due to bidders’ activities, many users are inclined to leaving the network due to the high cost of transactions.
This illustration is one big problem of the network effect: an increase in users of a given product could end up leading to a decline in its value.
Types of Network Effects

- Direct Network Effect: We see this type of network effect when an additional user affects pre-existing users. This means that existing users directly profit from the accumulation of new users.
- Indirect Network Effect: It is also called the cross-side effect. It is a type of network effect by which new users’ addition to a particular product is not influenced by the product’s innovations but by an external body. We mean that users do not use the product because of what they want to gain but because of a complementary product that brought about awareness. New users adopted the internet because of the availability of cheaper means of accessing the Internet.
- Bilateral Network Effect: This type of network effect is observed when the increase in a complementary product triggers an increase in the product. Again, the Internet is a good example - for instance, the number of Internet users increases due to an increase in the number of smartphones produced or purchased. The smartphone is a complementary product whose growth influences the actual development, which is the Internet.
- Local Network Effect: This occurs when new members’ addition is beneficial to some pre-existing users rather than the entire users.
Conclusion on Network Effects
Network effects are a beneficial concept that many organizations leverage for rapid growth. A network ensures that its products or services are sold effectively. Networks may have some side effects like congestion, as seen in the Ethereum network or even on the Internet. Many users can lead to a slower network. The network effect is generally a positive phenomenon. The impact of the network effect is readily seen in many sectors of technology and finance. Its impact is well established in crypto markets and can be a strong determinant in how well a cryptocurrency is adopted.
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This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
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Related News


Binance VIP Traders Informed of $4B Settlement Back in September

The exclusive gathering took place at a luxurious Singapore night club in September, where attendees engaged with Binance executives and probed about the potential settlement.
Binance reportedly hosted an exclusive dinner for its most significant market makers in September. The gathering, held at a prestigious Singapore nightclub, was an intimate setting where select VIP traders gained insights into the impending $4 billion settlement with the U.S. Department of Justice, according to a recent report from Bloomberg.
The private dinner, organized for Binance's top traders, unfolded in the upscale 1880 members-only club. Attendees, consisting of market makers and traders, engaged in discussions with Binance executives about the company's legal challenges. The conversations revolved around the potential $4 billion fine, leaving attendees convinced that Binance could afford and would settle such a substantial amount.
Attendees' Perspectives
Reports suggest that attendees, after breaking into smaller groups, sought clarification on Binance's legal troubles. They left the dinner with a heightened expectation of the $4 billion settlement, emphasizing the significant financial impact it would have on the exchange.
Former CEO Changpeng Zhao was notably absent from the gathering, with the then-head of regional markets, Richard Teng, representing the company.
In response to the reports, a Binance spokesperson disputed certain aspects of the event's depiction while refraining from specifying the inaccuracies, as per The Block. This discrepancy in accounts raises questions about the transparency surrounding Binance's legal challenges and its communication with stakeholders.
Implications of the Settlement
Binance’s $4 billion settlement with U.S. authorities, including the Department of Justice, Department of the Treasury, and the Commodity Futures Trading Commission, marked one of the largest corporate settlements in U.S. history.
The resolution concluded a criminal investigation into allegations of money laundering and sanctions violations, settling many of Binance's legal troubles in the U.S. However, Binance.US and Changpeng Zhao still face a lawsuit filed by the U.S. Securities and Exchange Commission.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $1500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
This is a paid press release, BSC.News does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products, or other materials on this page. The project team has purchased this advertisement article for $2500. Readers should do their own research before taking any actions related to the company. BSC.News is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods, or services mentioned in the press release.
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