(The third post in the meta-experiment series of the Broken Money book club, part 5. Check out the second.)
People talk a lot about btc's network effect; but imo, they don't talk enough about what network effects are built out of. Do network effects accrue by magic, or as a law of nature?
“Monies tend to have network effects based on salability. The more liquid, widely held, and widely accepted a certain type of money is, the more useful that money becomes to each user, and thus more people want to hold it and accept it. All else being equal, the more conversion points between bitcoin and goods, bitcoin and services, and bitcoin and currencies there are globally, the healthier the Bitcoin network is.” (p. 330)
Here, Lyn's proposing that a money's network effects accrue as a function of what you can do with it -- the kinds of things you can ground it in, to use philosophical language. So what's grounding btc's network effects?
The principal ground, from a price perspective, are the places where you can exchange btc for fiat. Coinbase gets a ton of hate, but Brian Armstrong claims to have onboarded more people to btc than anyone else, and I expect he's right. You don't have to like it, but if you bought btc at any point in the last, I dunno, ten years, then you should probably care a lot about having abundant fiat on and off-ramps. Exchanges are a centralized and fragile type of grounding, but Brian Armstrong is still your huckleberry.
Another expansive source of grounding would be a circular economy, where btc is grounded in all the stuff you can buy with it directly. The most developed (or perhaps only?) example of this is probably Bitcoin Beach (EDIT: recent SN post by @TNStacker links to a timely update on BB.). I'm not sure how circular this economy actually is, as I assume that even in the best case the inhabitants of El Zonte need to buy goods from outside the btc economic zone, at which point they're converting into fiat again.
This, to me, seems a major issue. A person in El Zonte who has to spend most of his money buying physical goods from people who don't accept btc has limited ability to absorb btc capacity -- to provide a 'conversion point' for btc into things that people want to buy, as Lyn would say.
Tie flip side of that issue is an opportunity. People who already have functional levels of fiat could absorb a lot of excess btc capacity by discounting prices for their services when payment is rendered in btc. I described a version of this a while ago. White-color workers whose inputs and outputs are informational would be the best candidates. In this case, btc would be grounded in the the kinds of things an information worker could provide.
Are there are other non-exchange "conversion points" that could be low-hanging fruit to bootstrap btc's network effects? How could we increase btc's resilience and decentralization by grounding it in more things?