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Thread: It's tempting to think that Carl Menger's famous theory of how money can spontaneously emerge from a state of barter supplies a basis by which BTC might displace the dollar or some other established national money. https://news.bitcoin.com/carl-menger-the-nature-and-origin-of-money/
In fact Menger's theory has precisely the opposite theory. It is, fundamentally, based on the implications of what today's economists call "network effects" (or, sometimes, "network externalities") and the "network goods" that give rise to these. https://stewartanderson.wordpress.com/2014/06/23/network-goods-and-network-effects/ 2/
Basically, a network good is one the attractiveness of which depends on its existing user base. The more who use it--who join it's "network" of users--the more tempting it is for others to join. Telephones are perhaps the most familiar network good. Money is another.
Menger's theory depends on some commodity gaining an initial perceived network size advantage. If enough people perceive this, it can create a positive feedback loop, leading to universal or near universal membership in the network.
"Money" is just another name for medium of exchange that's generally accepted, hence one with network that most people have joined.
But the very fact that some medium has secured a near universal network makes all other potential monies less attractive: whatever their other merits, on network effect grounds alone they are inferior. This doesn't mean they can't be successfully challenged.
But it makes challenging them a daunting proposition, and all the more so the bigger the bigger the incumbent currencies initial network advantage. For the USD, that advantage is especially overwhelming.
For other currencies the challenge is of course less extreme. But even here the upstart rival must have many clear advantages such as can overcome its relatively small network-size handicap. And those advantages must be widely recognized, not just appreciated by some.
Further, the advantages mustn't merely succeed merely in offsetting the rival currencies network size disadvantage relative to an incumbent money. They must make it seem superior to all other potential candidates, including other official currencies w/ large established networks.
Consider, for example, Venezuela. The Bolivar is garbage; and Bitcoin may well be more attractive than it for conducting transactions there. Indeed, it has gained a foothold. https://cointelegraph.com/news/bitcoin-acceptance-skyrockets-in-venezuela-amid-hyperinflation-crisis
But the U.S. dollar has made much more substantial inroads. It is far, far more likely that Venezuala will end up fully dollarized than fully "bitcoinized." Network effects are one reason why. https://www.bloomberg.com/news/articles/2019-11-05/venezuela-is-now-more-than-50-dollarized-study-finds (End.)
