Topic: Why Bitcoin is ultimately doomed to fail (not today or tomorrow) - page 32. (Read 40866 times)

Yes. Exchanges trading different amounts of fiat for bitcoins (difference in price) are in this scenario valuing *fiat currency* differently, because it can buy more and less bitcoin in different places.  The arbitragers are the people enforcing Gresham's law by selling bitcoin at a higher price in Japan then 'driving out' the money they used to buy them with to (say) the US, where they buy more bitcoin than they sold. 

This is no different from a merchant who can buy an amphora of wine in Rome a couple thousand years ago for the new debased currency doing that, then taking the wine and selling it in Gaul where they value the debased currency according to its real silver value. He trades it for TWICE as much 'bad' money as he paid for it.

Repeat for as long as the idiots in Rome will take the debased coin at the same rate as real silver, and multiply by a thousand merchants. The net effect is the 'bad' money or debased currency all winds up in Rome while the 'good' money or pure silver all winds up in Gaul.

Now consider Bitcoins here to be the 'wine' from the above example and substitute "regulated and manipulated exchange rates" for "valuing the same money differently in different places" and the above is what's happening.

You won't borrow BTC from a bank, the bank will issue a credit card with which you will pay for your purchases. Whether this bank (or any other bank for that matter) actually has all the BTCs it has credited you with is another question... So, unless there is a Central Bank which has set the economy on a Bitcoin standard (with all ensuing dramatic consequences), banks will still be able to create more money (virtual BTCs) than there are bitcoins out there...

If you agree with this, then the fixed supply nature of Bitcoin becomes unnecessary and detrimental here

But isn't this already happening with the arbitrage going on between exchanges?

If nobody mines bitcoins, there will be none, period. I'm not going to get into a petty argument about what decentralization means (actually you're catching at every possibility to confuse issues). Decentralization, whatever you may next mean by it, won't make  Bitcoin any better, since it doesn't prevent its accumulation. Go and see its present distribution between owners...

Thanks for your explanation of what Gresham's law is about, but I still see no reason why Gresham's law won't be working if free flow of national and crypto currencies is allowed. If a national currency inflates (something that you would expect from a fiat currency, say, dollar) while an alternative currency deflates (such as Bitcoin) then this will be an obvious case to apply Gresham's law principle here, i.e. deflating currency (Bitcoin) will be stashed away whereas inflating currency (dollar) will be used in exchange whenever possible...

And you didn't explain what was wrong with my logic regarding "free banking era". Please make yourself clear

I'm not sure about this. If you borrow fiat from a bank to make a purchase, neither you nor the seller expect a suitcase of notes. You both want a bank credit. The issue of bank credits without any underlying reserves is what then enables FRB.

But if you borrow BTC from a bank to make a purchase, the seller will expect to receive the actual BTC, not a BTC bank credit. So the scope for FRB is far more limited.

It seems that you struggle to understand what decentralized means.
If a bank, an institute, an organization, a country of even me issue money then that's not a decentralized economy. Bitcoins are issued by themself. There is absolutely noone issuing them. If you can't see how revolutionary is that then i guess it can't be helped anyway.

In a way you can see gold as something decentralized and bitcoin has elements inspired by gold anyway. Some even call it gold 2.0.
Gold though isn't a currency and bitcoin has all the qualities of gold and on top of that adds all the characteristics of a currency.
And don't forget something. Gold is around as money or to store wealth for around 6000 years 

Gresham's law happens when you have currencies of different value, but some idiot is accepting them both at the same value.  (or some idiot nation is demanding via law that *everybody* be such an idiot).

It naturally happens that the idiots then wind up with the currency that has the lesser value, whilst all of the higher-valued currency goes elsewhere, where non-idiots will give you more stuff for it.  So 'bad money drives out good' refers to a nation that demands that (say) a debased coin with half the silver content be considered 'the same' as an earlier coin that was substantially more silver.  If people can get more stuff for the silver money outside of that country than they can for the debased coin, then all of the silver money is 'driven out' of the country.

I didn't understand what's wrong with my logic about "free banking era" (actually, I just described what was happening back then), but could you provide cogent reasons as to why Gresham's law won't be applicable if national and privately-issued currencies were allowed to float freely against each other?

Surely, you're confusing me with somebody else. Somebody who has been told not to write his shit here...
Nothing is perfect, but at least we could try not to make the same mistakes (even this would be a huge step ahead)!

One problem with the OP's logic is that during the 'free banking era' many different banks were issuing 'dollars' that in theory were supposed to trade equally.  But due to some banks being more sound than others, some notes were manifestly worth more than face value and some manifestly less.  Theory and practice differed according to Gresham's law, leading eventually to the dissolution of that system as a non-working mistake.

If national and privately-issued (crypto-) currencies are allowed to float freely against each other, then Gresham's law does not apply.

You could "issue" your own IOUs which would constitute your own "decentralized" currency. As I have earlier said in one of my posts somewhere around here, in medieval times you could bring an ingot of gold to the mint and have official coins minted from it, so there is nothing new in "decentralization", which you apparently promote as one of the virtues of Bitcoin...

In any case, decentralization will be of little, if any, help for Bitcoin. Gold was "decentralized" too, so no difference here...

What you suggest is setting a new Bitcoin standard. It will inevitably fail for just the same reasons the gold standard had failed...

Yes, those were the reasons why the gold standard was established. In this monetary system government guarantees a fixed exchange rate to the currency and authorities agree to sell you some gold on demand at a fixed price in exchange for currency. Adherence to gold standard provoked a train of economic crises and depressions culminating in the Great Depression (and war in Europe), which led to its abandoning in the end...

The issue I raised is not about limited transactions, and it is not about arithmetics either...

Actually, what you say should be written as following:

Bitcoins -> paper Bitcoins by all banks (causes inflation and bank-runs) -> paper Bitcoins by Central Bank (establishment of gold Bitcoin standard)

And after that we begin running into ever deepening economic crises which finally bring about dismantling of the Bitcoin standard (see the Great Depression), so the last step will be:

paper Bitcoins by Central Bank (causes deflation and incessant economic crises) -> fiat by Central Bank (Bitcoin standard dismantled)

You clearly don't understand that 21 million bitcoins does not limit transactions at all.

Let's say it's the year 2300 and there's only 1 bitcoin left in the whole world. (All others have been lost due to wallets being lost etc.) this bitcoin would be worth 1 quadrillion dollars. A pizza would cost $500 due to inflation.

You could buy that pizza with 0.0000000000005 bitcoins

Also the reason people stepped away from gold as a currency was several reasons, including but not limited to:

1) gold is heavy.
2) goold coins where often scraped and molten to more gold, making the gold coin lighter than it should be, but careless people often accepted to coin for it's full value, this was later slowed down by adding markings on the sides of coins, so it's easier to see a coin has been tampered with.
3) it was easier and safer to leave your gold at the goldsmith/banker and pass the 'proof of deposit' around than it was to retrieve the gold from the goldsmith/banker, give the gold to the merchant, an do have the merchant put it back at the bank.

Bitcoins are not heavy at all
Bitcoins are easy to transfer (much faster and easier than most currencies, especially if you consider international trades, not to mention cheaper as well)
Bitcoins can not be tampered with
Bitcoins are inflation resistant.

So, moving from bitcoin to paper bitcoins makes not much sense at all, moving from bitcoin to a banking scam is even more unlikely.

How about you come up with something perfect,  GOD!?

That it won't take the place of fiat currencies or become an asset backing them up. This option is closed for Bitcoin, though it may actually turn open for gold if there's some global catastrophe that would throw us into anarchy...

So by decentrilization you mean different banks issuing money. I guess we are still in a decentralized economy then since different nations / organizations / banks are still issuing money. Guess what. No.