When evaluating a cryptoasset, the network effect is an important factor need to consider.
My understanding of the network effect should be a spiral rise of internal and external linkage effect:
Internal and internal linkage, tokens should not only be used internally to realize value but also because the use of token can further enhance the network value to attract more new users to join, not just to be consumed or consumed internally.
Internal and external linkage, because of the increase of the network value of the internal linkage network to attract new complementary ECO partners, and the addition of complementary ECO partners further promotes the wider use of tokens, further enhance the network value and attract more new users join.
If a cryptoasset has a network effect, in general, the cryptoasset project itself can solve the problem which with network linkage effect, and only when the demand has network linkage effect, it is possible to have a network effect. A social network similar to the Internet. Of course, tokens must be deeply integrated with the network. For example, if there is a token, the proportion of the right to use the network can be obtained. As the network effect increases, the value of the token also increases. Ethereum, EOS, and IPFS are all the same. The increase in the number of nodes and applications using IPFS for storage means that the number of resources in the system is also increasing, meaning that the storage value represented by each token increases. It will eventually reflect the price of the currency.
If the token is only used for trading on the cryptocurrency exchange platform, it is mostly “air coin”, and if the token can be used internally to purchase functions or services, the cryptocurrency has practical utility.
Once a token is actually used, it has a value base and also reduces liquidity, which can have a positive effect on token appreciation. Vitalik Buterin and Chris Burniske talk a lot about the theory that tokens will be held by users and will also reduce liquidity and promote token appreciation, you can check details online.
If the network effect gives a space for the growth of the crypto project token price, then the actual use of the token is the basis of the token’s fundamental value.
