February 2nd, 2024

Note: This email was written by non-native English speakers. The CloudCoin consortium is an international group so please tolerate errors.

CloudCoin Desktop's new design being implemented now. ETA March 15th

The Network Effect

Digital currencies require something referred to as the "Network Effect". This is when products become more valuable as more people use them. A poorly understood reality is that Money itself is a product and has more value than just the numbers it represents. The value of money can increase and decrease according to a lot of factors but the network effect is certainly one of them. There is an extreme amount of value that can be created by increasing the network effect. 

The network effect can be understood by looking at the Uber company. In order for Uber to work, there must be a driver and a rider at the same time. If drivers and riders do not come together at once, the network fails. Another example is YouTube. With YouTube, there must be a content creator and a contact consumers otherwise no network. The same is true with any currency, there must be a buyer and a seller. 

Atomic Network

One issue is that of the “atomic network”. This means how many users are needed for a network to survive. It is within the realm of possibility that a digital currency could survive with only two users. They would need to buy and sell from each other and that would seem unlikely. We see atomic network effects in nature. In the 1950s, there were millions of sardine fish off the coast of Monterey California. These fish need to school together for protection. However, once enough of the Sardines were fished, the entire population collapsed. We learned the hard way that fish cannot be hunted lower than their atomic network or they will go extinct. 

Atomic Network: Smallest size to sustain the network.

Tipping Point

Networks take effort to grow. This may come in the form of marketing or actually paying people to use the network. At some point, networks can hit a “tipping point” or “escape velocity” that allows the networks to add more users without any inputs. If this growth is big enough, we call it “going viral”.

Easy Side, Hard Side

Networks have two parts, the “easy side” and the “hard side”. For example, it is easy to get content consumers on Youtube but more difficult to get contact with creators. For a digital currency, it is more difficult to get people to access the currency as payment than to get people to use it to spend. But, if you can solve the hard side, success may be easy. 

Anchors

One way to solve the hard side is by recruiting "Anchor" sellers. This is kind of like when you go to a mall (what's left of them) there are large department stores that bring in the most shoppers. Other smaller retailers in the mall benefit from these huge anchor stores. With currency, anchor sellers accept the digital currency and as payment and in some cases(such as the petrodollar) accept the currency exclusively.  

One of the Anchor sellers that makes or breaks the value of the US dollar is Oil. When Trump increased America's ability to produce and sell oil to other countries, it increased the value of the dollar. Likewise, when Biden reduced American abilities to create and sell oil on his first days in office, he reduced the value of the dollar. The effect of this looks nearly identical to inflation. The value of the dollar goes down and everything becomes more expensive because no one needs the dollar to buy oil with. 

Liquidity

Oil is a very "liquid" commodity that everyone needs and everyone is willing to pay for. Other liquid commodities include  precious metals, rare earths, gems and jewels. 

What makes the dollar really valuable is that people all over the world who need oil must buy it with dollars. The so called “petrodollar” means that everyone needs dolors to buy oil. This inadvertently boosts the price of dollars regardless of the price of oil. Imagine if everyone in the world switched from buying oil with dollars to Russian Rubles? Then the ruble would go up in value. 

Taxes

Governments create their own massive anchor by requiring everyone in their nation to pay taxes in their currency. Even it the currency is completely crap, the people must trade for it to pay there taxes. This allows the governments to “cash in” on the network. Once a network is big enough, it is possible to “cash in”. In currencies, this is usually done by inflation. The government prints up money for itself and veryone in the network is gets taxed by this inflation. But they keep using the currency because they are stuck in it.

CloudCoin

So how can CloudCoin create a big enough network to be self-sustaining? CloudCoin seems to already be self-sustaining but it has not hit any kind of tipping point or escape velocity that has caused it to go viral and up in value. 

However, CloudCoin’s situation can change in an instant. With the right anchor seller CloudCoin could become in demand. Once people try CloudCoin, they are unlikely to tolerate Public Ledger based money.

RAIDA Tech has created GPT Anonymous which allows people to use AI without logging for the sake of privacy. People who try this program like it and RAIDA Tech has now hired a sales company to solicit companies to use it. GPT Anonymous uses CloudCoin and will not work without CloudCoin. GPT Anonymous may not be the anchor for CloudCoin, but the technology could enable all software to accept Cloudcoin as payment so it could lead to other things. 

Either Way, CloudCoin is he best and it is just a matter of time. 

Note: Almost all of the ideas in the email have been adapted to digital currencies from the book The Cold Start Problem.