To be useful, does Google Wave need a significant number of one's contacts to be using it already?

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No, because established applications can build 'bridges' to it

Wave is designed for federation. Developers can build bridges between existing applications, like gmail and gtalk, and wave. People could send you an email, and it would show up to you as a Wave. People could start chatting to you in gtalk, and that would show up as a wave too.

That's what I've heard anyway...