Metcalfe's Law Explains 10x Price Growth Vs. 3.2x Transaction Quantity Growth
At least two posters, gbianchi https://bitcointalk.org/index.php?topic=441336.0
and Peter R https://bitcointalk.org/index.php?topic=400235.msg5877592#msg5877592
have presented a theory on the relationship between Bitcoin transactions and bitcoin prices.
The consensus result is that prices are growing in proportion to the square of the transaction quantity and also in proportion to the number of addresses. Peter R uses the Blockchain.info data series that excludes the 100 most popular bitcoin addresses from the recorded transaction quantities.
Here is the outstanding chart provided by Peter R that best illustrates the application of Metcalfe's Law to bitcoin prices . . .
And here is the example device network from the Wikipedia article on Metcalfe's Law. The insight of the law is that the utility of the network, e.g. bitcoin users, is directly related to the number of reachable nodes. The number of connections is the approximately the square of the number of nodes.
Supposing that Bitcoin completely replaces the current payment infrastructure entails a transaction rate that surpasses the current quantity of bank card transactions. At a growth rate of 3.2x annually, Bitcoin daily transaction quantity will exceed 350 thousand in 8 more years. But applying Metcalfe's law predicts a bitcoin price of 58 billion USD per coin at that point - which is implausible. Therefore it is reasonable to suppose that small-world effects will disconnect the bitcoin price relationship from transaction volume, in that the future whole Bitcoin network will not be uniformly well connected but rather be clusters of well connected nodes. Here is the example graph from the Wikipedia article on small world networks . . .
At least two posters, gbianchi https://bitcointalk.org/index.php?topic=441336.0
and Peter R https://bitcointalk.org/index.php?topic=400235.msg5877592#msg5877592
have presented a theory on the relationship between Bitcoin transactions and bitcoin prices.
The consensus result is that prices are growing in proportion to the square of the transaction quantity and also in proportion to the number of addresses. Peter R uses the Blockchain.info data series that excludes the 100 most popular bitcoin addresses from the recorded transaction quantities.
Here is the outstanding chart provided by Peter R that best illustrates the application of Metcalfe's Law to bitcoin prices . . .
And here is the example device network from the Wikipedia article on Metcalfe's Law. The insight of the law is that the utility of the network, e.g. bitcoin users, is directly related to the number of reachable nodes. The number of connections is the approximately the square of the number of nodes.
Supposing that Bitcoin completely replaces the current payment infrastructure entails a transaction rate that surpasses the current quantity of bank card transactions. At a growth rate of 3.2x annually, Bitcoin daily transaction quantity will exceed 350 thousand in 8 more years. But applying Metcalfe's law predicts a bitcoin price of 58 billion USD per coin at that point - which is implausible. Therefore it is reasonable to suppose that small-world effects will disconnect the bitcoin price relationship from transaction volume, in that the future whole Bitcoin network will not be uniformly well connected but rather be clusters of well connected nodes. Here is the example graph from the Wikipedia article on small world networks . . .
Are you sure Metcalfes law can used to price an asset class? Isn't it used to describe network effects?