Topic: Gresham's Law and Bitcoin - page 2. (Read 527 times)

I saw "Richard Hearts law" made to a script like a calculator. Mathematical defendable. You punch something in and it sticks to the same numbers if your repeat the example. Should count for something. You Law making citizens.

It's about liquidity and gains. Time for my beer. Love you guys.

Firstly, let's try and understand what this law is talking about

This law is basically trying to explain to us that when 2 currencies(bad and good) have equivalent value is available in an economical system, the bad money will eventually drive out the good money from circulation

Secondly, let us understand the difference between the terms "good money" and "bad money
Well, by the law, I think good money is referring to money with more value or better quality
While bad money has less value in the economy

Now let us understand why the bad money ends up overthrowing the good money
And to me, the fundamental reason for this according to what you explained is due to the fact that people tend to hold the good money to themselves and spend the bad money and this will eventually lead to bad money being more circulated than good money

Now, to the matter at hand
You believe that this can end up happening to Bitcoin, but I'm here to tell you that you have nothing to worry about. This law can't apply to Bitcoin
Why? You may ask
Well
1-by the definition I made, they said 2 currencies of equivalent value
Bitcoin has no mate, has no competition, and has no other crypto currency with equivalent value
I know you may say fiat can be considered it's rival but to me, Bitcoin itself is above any fiat, or is there any currency that a single unit of it costs $67,000
Well, if you still have doubts about that reason, let me go for 2
2- Bitcoin is limited, unlike fiat, which can be printed endlessly by the government
The last point I can think of would probably be the fact that Bitcoin, unlike fiat, is a digital currency so.i ser nor reason why this law can affect Bitcoin

The only scenario where I think this can occur is if there's a law worldwide that is basically against Bitcoin and causing fiat to be more favourable to Bitcoin

I think this law applies to almost everything in life.

When you mix clean shirts with dirty shirts, dirty shirts don’t come up clean. It is the clean shirts that become dirty.

In a healthy population, when corrupt people don’t get punished hard enough, they keep spreading, affecting the honest law abiding individuals and in the end, everyone becomes a criminal.

So, bad money drives away good money.

That’s also the reason why many nations are embracing protectionism lately. Trump wants to stop illegal immigrants coming to the US because illegal immigrants raise the crime rates. Bad people drive away good people. Vote Trump and stop this madness.

There is also a psychological thing behind this story of (good) and (bad) money. People, when they feel that a coin or a bill has more value, they tend to get attached to it, as if it were a personal treasure. This is perhaps why some people keep their Bitcoin safe, hoping that it will become a kind of (digital luxury) instead of a currency that we use every day. In the end, the value we give to a currency is not just numbers, it is also a question of rarity and trust.

Here you are talking about physical coins, metals, which have different values. In the case of bitcoin ("gold") there are no other "metals". If you offer altcoins as alternatives to "silver" (but don't include litecoin here) and "bronze", then this will be an incorrect comparison, because all this doesn't compare to bitcoin. Altcoins can't be "melted" into the original more valuable metal, because it was garbage and remains so.

If some try to save their bitcoin, it doesn't mean that others will lose the desire to possess the same thing. This will lead to the fact that the more some try to save, the less of it will go to those who want to possess it, which in turn will spur the growth of the cost of bitcoin.

The centuries when money had physical value are far behind. Money now is just a piece of paper that does not have any physical or practical value (similar to Gresham's law, the paper from which the money of African countries is made is more profitable to hand over to waste paper? ). And in the future - it will be only 1 and 0 in the system code.

Sometimes weak miners have to do it and it's natural selection in Bitcoin mining industry. Weak miners with small capital, and bad capital and risk management will be forced to leave this industry.

Strong, experienced miners with good capital and risk management, good strategies will not sell their coins below cost of production from mining, like you said, but it does not apply for all Bitcoin miners.

Miner capitulation.

I don't think this can happen to Bitcoin. Of course, people save Bitcoin and spend fiat, but they don't save their Bitcoin because it is "good money"; they do so because it's a good asset.
I've seen situations where a person decides to use old and wrinkled fiat currency and save the freshly printed mint, but those kinds of situations are not significant enough to cause anything to happen.

Demand and supply drive the value of currencies or assets, so as long as there is a demand for Bitcoin, it will always have value. The more people save it, the more the value will rise and that will drive more people to invest in it because they wont want to miss out and this will further drive the value up.

Yes, because people wouldn't sell their coins below the costs of producing them. That's why you could see testnet4 coins, sold at 20 satoshis per 1 tBTC, and now, when CPU miners already dumped their coins, and ASIC miners started to produce blocks with CPU difficulty, the price starts rising, and suddenly reached 30 satoshis per 1 tBTC. Just because the costs of producing a single tBTC raised.

But that's what I understood. Maybe it wasn't explained well to me - my English isn't very good and sometimes the meaning of the sentences can give you the wrong idea.  


In fact, Bitcoin does not have a value based on a metal or physical good. Therefore, it will be somewhat complicated for this “law” to be applied to Bitcoin.


But, if the value of ASICs were 90% cheaper, could this cause a devaluation in the value of Bitcoin? Can the logic of this theory be applied in some way?

Of course. For example: you have a lot of bad altcoins, which are terrible, when it comes to preserving any value, but they are great, when it comes to transacting. Also, that's why Bitcoin domination is decreasing over time.

Then, you can compare Bitcoin with Lightning Network or with sidechains.

What about test coins, like testnet3 or testnet4? If you check https://altquick.com/exchange/ and look at "Weekly BTC volume", then testnet3 is usually at the top. And if you look at https://mempool.space/testnet then you will see, that the network is so congested, that you can get around 40 tBTC from fees alone, and 2 GB of block data, worth 2500 tBTC, is waiting for confirmation.

Also, there is a way, to wrap BTCs, and make an altcoin out of that, while maintaining 1:1 peg, and while having peg-ins and peg-outs, in a form of real BTC transactions. So, there is definitely more than "one possible manifestation", because you can always "sign coins, to peg them in", and then "move coins, to peg them out".

Would such KYC be accepted everywhere, to begin with?..I don't think so.. But a good analogy and analysis behind it, thanks!

The concept of "good money" and "bad money" applies to a gram of gold, for example, being overvalued. If a gram of gold is worth $100, then a gram of gold that is traded somewhere is worth $110. But since the Nixon shock, all money in circulation is much higher than the value of the paper that is printed. The cost of printing $100 is about 9.4 cents per note, so all money in circulation today is bad money.

With Bitcoin, this concept could happen if KYC were strictly accepted so that Bitcoin that comes from mixers is worth less than Bitcoin that comes from the government. This would be the end of Bitcoin.

Big companies and some services are using BTC as a means of payment, however, I do think that the trend and the general opinion would stay for BTC to be a big storage of value put into a crypto space with the benefits that it provides for everybody.
As it was said, who said that BTC needs to be a currency for daily life? It's more like a dream for some people.

I think it already is happening to some extent.

Not that I think its value is already being dwindled down however I do notice, even in myself and a lot others, they tend to save their bitcoins and hold instead of using it to purchase something not that huge anyway. Who would spend a couple of satoshis to buy a water bottle for example? No one. Even if you have 0.0001 sat, you would want to hold on to it and let it grow.

However, it is not all lost because bitcoin is still a currency first and foremost. Despite many opting to hold bitcoin, a lot still use it as a currency to make their transactions. We can see this with businesses using bitcoin to receive payments.

I don't know where you get that from, it's just the other way around. If a silver coin is worth $1, it is worth $1, and what happened in ancient times is that to devalue the currency, starting with the Romans, instead of making silver coins they began to put alloys of copper and other metals in the silver in coins with supposedly a nominal value of $1, but people soon realized that it was not pure silver and when carrying alloys of other impure metals they asked for more coins to pay the same as if they were coins of only silver.


There are several of us who believe that you have misunderstood it, and I don't want to turn this into a battle of egos, it's okay to misunderstand something.


No, I don't think anything similar can happen to bitcoin.

The melting of silver and metal when the intrinsic value is greater than the nominal
Was just an example to showcase how individuals hoard perceived better money
And push them out of the market and the bad remains in circulation.

I doubt if OP called it a bad thing, if people start holding it means they believe it's better to the alternative they would be spending.
But well the no value could mean more since its joker or it's a mistake.

Ah, okay. I understand now.

But yeah, Bitcoin only has one possible manifestation, so Gresham's Law cannot apply.

I do not understand your question to be honest.  Why would the value of Bitcoins be lost due to people wanting to save their Bitcoin?  How can this apply to Bitcoin which is a digital Asset and not something you can melt?

People saving their Bitcoins only leads to scarcer Bitcoin, I do not see why it would become a bad thing unless nobody wants to spend their Bitcoin any more.

I didn't misunderstand this "law", so I gave the examples I did.

I discovered this law by listening to a conversation about Bitcoin. So ask if it would make sense to associate one thing with another.

Certainly nothing like this will happen to Bitcoin. But, I found it interesting to analyze/think about this in relation to Bitcoin and the failed fiat currencies.

As others seemed to have mentioned here, you are misunderstanding this law.

It applies to the the same currency in two different physical forms e.g. US dollars denoted in copper coins vs. silver coins, wherein the latter would have more value (in USD).

For instance, silver quarters are kept by collectors as an investment because they are worth many times their face value of $0.25:

https://uscoinsandjewelry.com/item-details/100-face-value-90-silver-quarters-400-total-coins-1964-and-before/100FACEQTRS90

Also, remember that a currency can potentially be any one or more of three things:

1. An investment (or a means of storing value).

2. A means of value transfer (i.e. transacting).

3. A means of commonly known value measurement.

The USD is always all three of these things, and will always be #3 forever.

Bitcoin is mostly #1 today, and rarely #2, and will never be #3.

Fast and scalable digital currencies like Haypenny currencies can be #1 and #2, and will never be #3.

(Only currently well known currencies like USD, EU, GBP etc. will ever be #3).