Network Effect
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.
A currency's efficacy as money 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.
A payment network arises out of network effects of collection of interconnected banks which operate in conjunction a central bank to do clearing and issue a currency. This is an example of a centralized hub-and-spoke model which forms the basis of all modern financial systems.
See also decentralization and recentralization.
References
- Katz, Michael L., and Carl Shapiro. "Systems competition and network effects." Journal of economic perspectives 8, no. 2 (1994): 93-115.
- Metcalfe, Bob. "Metcalfe's law after 40 years of ethernet." Computer 46, no. 12 (2013): 26-31.
- Newman, Mark EJ. "The mathematics of networks." The new palgrave encyclopedia of economics 2, no. 2008 (2008): 1-12.