There are two main types of network effects – direct and indirect network effects.
Direct network effects are what we’ve just discussed with the telephone. Increased usage adds value for all other users.
Indirect network effects are less easily defined. The term refers to additional, complementary benefits that stem from there being a network effect in the first place. For example, many cryptocurrencies are open-source.
A project with a strong network effect may draw in many skilled developers to audit the code since so much value is at stake (including their own). This added value comes from there being so much value in the network in the first place. This effect starts compounding, and we arrive at dominant leaders that build up significant network effects over their competitors.