Gresham's law is probably one of the most misunderstood things in economics. Bad money drives out good when they are both identical in face value but different in intrinsic value. You have two coins, both with $1 face value, one made with silver, the other with copper, when you get a silver coin you keep it but when you pay, you pay with copper. This way silver coins get stored and copper remain in circulation. But it only works because law recognizes both as identical, even though they are different. If this is not the case, Gresham's law does not apply. In countries with hyperinflation, people start to use anything else than the rapidly losing money and it's the opposite: exchanges are made with good money, bad money is only used when dealing with the government.
I cannot see any similarity in bitcoin. Bitcoin is different from, say, dollar and is not recognized as identical.
Topic: bad money drives out good - page 2. (Read 8939 times)
There is a condition for gresham's law, the value of the currency must be set by political fiat. Banknotes are worth very little, but we accept them as valueable due to political fiat.
Consider, for example, that you have two £20 notes. One signed by someone famous and one is just normal. Then you walk into a shop and hand the shopkeeper the unsigned note, because it is worth more to you and the shopkeeper is obliged to accept both for £20. Bad money (of less value) has driven out good money (of more value). The same reasoning applies to clipped and unclipped coins, etc.
The value of bitcoins are not set by political fiat, so this reasoning does not apply.
Consider, for example, that you have two £20 notes. One signed by someone famous and one is just normal. Then you walk into a shop and hand the shopkeeper the unsigned note, because it is worth more to you and the shopkeeper is obliged to accept both for £20. Bad money (of less value) has driven out good money (of more value). The same reasoning applies to clipped and unclipped coins, etc.
The value of bitcoins are not set by political fiat, so this reasoning does not apply.
I'm down with everything you just said, especially about the exchanges.
You are absolutely right about Gresham's law being a factor...but your conclusions about the detrimental effect on btc couldn't be more wrong. Gresham's law works in bitcoin's favor, not against. Yes, people will hoard btc and be reluctant to part with it, but that is a good...no, that is a *great* thing. People will not have to work any more or less hard due to the value of btc. They will still need to work hard against their competition...but the value of btc is irrelevant in that. People will offer substantial discounts for payment in btc if they know btc is likely to appreciate in value. And people will offer their goods and services in either btc, or dollars, or other currencies so long as they know there is a liquid and relatively hassle free exchange market. They will start to value things in terms of btc if they can count on its value rising. Would you say that gresham's law is negatively impacting the gold and silver markets today?
What is critical is that it's very, very easy to exchange btc for currencies that are broadly accepted around the world. If had had to pick an aspect of bitcoin to put more energy into, it's the exchanges. It needs to be easier and cheaper for people to convert in and out of btc. In fact, if you hold a lot of btc, you are an investor in the btc community and I would advise doing everything you can to make it easy for people to exchange various currencies for btc. Exchange code should be open sourced, there should be lots of them, and people should offer the ability to exchange at minimal cost (it shouldn't be viewed as a profit maker...if you operate an exchange, your profit will come when btc goes viral and millions around the world use it...and exchanges will be the key enabled for that to happen). My plan is to establish myself in the OTC and other exchanges and then offer my services (for free) to people in my local community that are curious about btc and have a decent understanding of money and investing. I can take some of the pain in acquiring btc away for them. Of course I also intend to accumulate btc.
The biggest risk I see in bitcoin is institutional. The governments and financial institutions around the world are not going to like this one bit. People in the btc community need think very carefully about this. Btc will be labelled a ponzi scheme in the mass media. Criminals will eventually find out about btc and use it for money laundering and other criminal activity. One of the biggest tools that law enforcement has is the use of the financial system to track the activities of criminals. The bitcoin proposition effectively takes that tool away from law enforcement. It has to be socialized among the general population that part of the cost of freedom is that it makes some things, like law enforcement, more difficult. But, at least for me, that is an acceptable cost to keep instruments like the financial system out of the hands of tyrants. It also makes it more difficult for a government to finance itself...you are basically taking the printing press away from the government...you know force the government to be honest with respect to the wealth it must extract from the people. They won't like that.
Bitcoin needs to spread, and it need to spread fast, and internationally...before these institutions are able to squelch it.
What is critical is that it's very, very easy to exchange btc for currencies that are broadly accepted around the world. If had had to pick an aspect of bitcoin to put more energy into, it's the exchanges. It needs to be easier and cheaper for people to convert in and out of btc. In fact, if you hold a lot of btc, you are an investor in the btc community and I would advise doing everything you can to make it easy for people to exchange various currencies for btc. Exchange code should be open sourced, there should be lots of them, and people should offer the ability to exchange at minimal cost (it shouldn't be viewed as a profit maker...if you operate an exchange, your profit will come when btc goes viral and millions around the world use it...and exchanges will be the key enabled for that to happen). My plan is to establish myself in the OTC and other exchanges and then offer my services (for free) to people in my local community that are curious about btc and have a decent understanding of money and investing. I can take some of the pain in acquiring btc away for them. Of course I also intend to accumulate btc.
The biggest risk I see in bitcoin is institutional. The governments and financial institutions around the world are not going to like this one bit. People in the btc community need think very carefully about this. Btc will be labelled a ponzi scheme in the mass media. Criminals will eventually find out about btc and use it for money laundering and other criminal activity. One of the biggest tools that law enforcement has is the use of the financial system to track the activities of criminals. The bitcoin proposition effectively takes that tool away from law enforcement. It has to be socialized among the general population that part of the cost of freedom is that it makes some things, like law enforcement, more difficult. But, at least for me, that is an acceptable cost to keep instruments like the financial system out of the hands of tyrants. It also makes it more difficult for a government to finance itself...you are basically taking the printing press away from the government...you know force the government to be honest with respect to the wealth it must extract from the people. They won't like that.
Bitcoin needs to spread, and it need to spread fast, and internationally...before these institutions are able to squelch it.
This is a good question, bitcoin has all the properties of good money, and according to greshams law, bad money drives out good. So whats the bad money?
In this environment, sellers will need to work extra hard, provide high quality unique services to make the buyers open their wallets. I think this can be problematic for bitcoin economy's long term growth, the expansion of goods and service traded in bitcoin has not kept up with the pace of its appreciation and network growth.
You know this, how?
We got lot of new people who just came in from the slashdot and security show traffic event. That mean we're going to see a lot more goods and services soon.
Gresham's law states "Bad money drives out good money", if the purchasing power of bitcoin doubles every few months, who would spend it? (except it's something the buyer desperately need and can only be bought via bitcoin)
In this environment, sellers will need to work extra hard, provide high quality unique services to make the buyers open their wallets. I think this can be problematic for bitcoin economy's long term growth, the expansion of goods and service traded in bitcoin has not kept up with the pace of its appreciation and network growth.
In this environment, sellers will need to work extra hard, provide high quality unique services to make the buyers open their wallets. I think this can be problematic for bitcoin economy's long term growth, the expansion of goods and service traded in bitcoin has not kept up with the pace of its appreciation and network growth.
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