What Is Metcalfe’s Law?

Metcalfe's Law was first formulated by George Glider in 1993 and later attributed to Robert Metcalfe in regard to Ethernet. Metcalfe had used this law to describe Ethernet connections when the internet got increasingly globalized.

Metcalfe’s Law is a way of describing the use of networks and highlights that the more users a network has, the more valuable it is to each individual user. 

An illustration of this law could be seen in the development of telephones. Back when only several people owned a telephone, there was little benefit to owning one yourself. But as more people started owning phones, there now becomes a cost to not owning a phone since you lose out on that interconnected ecosystem.

The concept of Metcalfe’s Law can also similarly be applied to the realm of digital assets. Metcalfe’s Law is mostly applied to big networks filled with discoverable devices that communicate with each other and in that sense: blockchains, markets, digital asset exchanges all meet that description. In that sense, Bitcoin is both simultaneously a network, a market, and a currency which also means that Metcalfe’s Law should apply here. 

The adoption rate of Bitcoin and the interface and flows of money across the wider market would therefore affect the price. Metcalfe’s curve could thus be a useful tool to illustrate where the prices of Bitcoin are likely to move in the medium term.

Bio: Gunnar Jaerv is the chief operating officer of First Digital Trust — Hong Kong’s technology-driven financial institution powering the digital asset industry and servicing financial technology innovators. Prior to joining First Digital Trust, Gunnar founded several tech startups, including Hong Kong-based Peak Digital and Elements Global Enterprises in Singapore.