13 lines
1.1 KiB
Markdown
13 lines
1.1 KiB
Markdown
# Network Effect
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A network effect is a property of a technical or financial system in which the utility of the system is proportional to the number of participants using it.
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A [currency's](currency.md) efficacy as [money](money.md) is in-part generated by its network effect giving rise to its widespread acceptance. It's efficacy as money is also linked to its price stability.
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A payment network arises out of network effects of collection of interconnected [banks](bank.md) which operate in conjunction a [central bank](central-banks.md) to do clearing and issue a [currency](currency.md). This is an example of a centralized hub-and-spoke model which forms the basis of all modern financial systems.
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See also [decentralization](decentralization.md) and [recentralization](recentralization.md).
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## References
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1. Katz, Michael L., and Carl Shapiro. "Systems competition and network effects." Journal of economic perspectives 8, no. 2 (1994): 93-115.
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1. Metcalfe, Bob. "Metcalfe's law after 40 years of ethernet." Computer 46, no. 12 (2013): 26-31.
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1. Newman, Mark EJ. "The mathematics of networks." The new palgrave encyclopedia of economics 2, no. 2008 (2008): 1-12. |