With Bitcoin fast approaching its teenage years, it is time to find out why the fact that it has survived for so long makes it incredibly likely that it will continue to survive and thrive long into the future.
In this article, we examine the Lindy effect. We cover what the Lindy Effect is, how it relates to Bitcoin, and whether Bitcoin has crossed the Rubicon in terms of the Lindy Effect.
What is the Lindy Effect?
Wikipedia says, “The Lindy Effect (also known as Lindy Law) is a theorized phenomenon where the future life expectancy of some non-perishable things, like a technology or an idea, is proportional to its current age. For example, the Lindy Effect suggests that the longer something has survived to exist or is used in the present, the longer it is likely to have a longer remaining life expectancy. Longevity implies resistance to change, obsolescence or competition and greater chances of survival in the future. “
At the center of the Lindy effect is human nature. As humans, we trust things more the longer they exist. For example, most people thought the Wright brothers were crazy when they built and flew the first airplanes in the early 20th century. Today we take air travel for granted. The same phenomenon applies to cell phones, computers, and bitcoin.
How is the Lindy Effect related to Bitcoin?
Now that we have a basic understanding of the Lindy Effect, let’s examine how it relates to Bitcoin. The first Bitcoin block was added to the blockchain on January 3, 2009. So we can calculate that Bitcoin has existed for 12, almost 13 years.
Understanding that the Lindy Effect states that “the longer a period of time has survived to exist or be used in the present, the longer it is likely to have a longer remaining life expectancy” we can then ask ourselves, “Does Bitcoin have crossed the Rubicon? As for the Lindy Effect? ”To answer this question, let’s examine the following topics: Bitcoin’s mining growth rate (hash rate), Bitcoin’s user growth rate, and Bitcoin’s resistance to change and competition.
Bitcoin’s mining growth rate
The Bitcoin network is secured by its proof-of-work mining system. Overall network security equals the amount of hash rate produced by miners. The graphic below shows the hash rate of the Bitcoin network since its inception. As we can see, the hash rate has grown exponentially over Bitcoin’s 12-year lifespan (the 2020 slump was due to China banning bitcoin mining).
In addition to the hash rate (security) of the Bitcoin network increasing over time, the spread of mining is also increasing. At the beginning of Bitcoin’s life, most of the hash rate was consolidated among a small number of players in a small number of countries. Today, thousands of miners around the world are contributing to Bitcoin’s hash rate, and thus the security of the network becomes more robust over time. In addition, large institutions and even countries like El Salvador are entering the bitcoin mining realm. It’s safe to say that the Bitcoin network will become more and more secure for the foreseeable future.
Bitcoin’s user growth rate
The growth rate of a technology is tied to its ability to achieve network effects. According to Wikipedia, “a network effect is … the phenomenon in which the value or benefit that a user derives from a good or service depends on the number of users of compatible products. Network effects are usually positive, which means that a particular user can get more value from a product when other users join the same network. “
To demonstrate the power of network effects, let’s examine Facebook. From its beginnings in 2004 to the present day, Facebook has grown from zero users to nearly 3 billion users worldwide.
Imagine if you were one of the first to use Facebook; They could only interact with the other few users on the network; thus the value was low. Compare that to today when users have the ability to instantly connect with 3 billion other users around the world and we can see the tremendous value that network effects offer.
Now let’s examine the user growth rate (wallet addresses) of Bitcoin to see if it has had a strong network effect. The graphic below shows the growth in Bitcoin wallet addresses since its inception. As we can see, the number of users joining the Bitcoin network has grown exponentially. The estimated number of users topped the 100 million mark earlier this year. It’s safe to say that Bitcoin achieved impressive network effects in its first 12 years.
Bitcoin’s resistance to change and competition
Bitcoin is resistant to change. Bitcoin critics point out that this is a mistake; however, it is actually a very important function. In order to change the consensus rules of the Bitcoin network, the majority of the users who run the software of the protocol must agree to the update. The fact that Bitcoin is decentralized and millions of people around the world are running versions of the software on their own computers is very difficult to reach consensus. Thus, only updates that the overwhelming majority of network participants agree on make it into the Bitcoin code. Bitcoin takes the opposite approach to the Mark Zuckerburg-inspired Silicon Valley ethos of “Move Fast and Break Things,” which, if you ask me, is a prudent strategy for the world’s future currency network.
Bitcoin is also resistant to competition. There are many thousands of competing cryptocurrencies. New cryptocurrencies are being created literally every day. So how is it that Bitcoin is still the overwhelmingly dominant cryptocurrency? Because when you combine its security (hash rate) growth, user growth, and perfect monetary policy, it becomes clear that Bitcoin has achieved something that no other cryptocurrency has, or is likely to ever will. Bitcoin has survived and thrived despite its competitors, most of whom have already failed or are on the way to failure.
Let us now return to the question we wanted to answer: “Has Bitcoin crossed the Rubicon in terms of the Lindy Effect?”
We can now clearly see that the Lindy effect applies to Bitcoin. As the Bitcoin network runs longer, the security (hash rate) of the network and the number of users in the network have also increased. Not only has the hash rate and the number of users increased, but it has also grown exponentially. The combination of network effects and the Lindy effect explains the dominance of Bitcoin among competing cryptocurrencies.
The Lindy effect is an important phenomenon to understand. Simply put, the longer something has survived, the longer it is likely to exist in the future. Bitcoin survived for almost 13 years. During this time it has developed powerful network effects that will help it survive and thrive long into the future.
Over time, we will continue to see Bitcoin’s security (hash rate), user growth, and competitors fail. An ever increasing number of individuals, institutions and nation states will join the Bitcoin network, amplifying its network effect and increasing the strength of the Lindy effect. Have a seat, it’s going to be a great ride.
This is a guest post by Don. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.