Bitcoin Forum

http://en.wikipedia.org/wiki/Gresham's_law

I'm wondering if it's a good idea to buy pizzas and cars and airplane tickets with a currency which you believe is appreciating in value (BTC), when you can just spend the currency that’s guaranteed to depreciate in value over time ($/£/€).

I've been looking at Bitcoins more as a component of a Permanent Portfolio (http://en.wikipedia.org/wiki/Fail-Safe_Investing (http://en.wikipedia.org/wiki/Fail-Safe_Investing)) than as an every-day transaction currency for this precise reason. Anyone else had similar thoughts?

Second sentence, first link:
It is commonly stated as: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law."

=>Gresham's Law does not apply to Bitcoin
QED

The existence of legal tender laws creates a Gresham condition; since we must pay taxes in fiat currencies, and many of us still earn our primary source of income in that form, a difference in the desire to hold/spend money exists.

Gold coins are still allowed to float, for example, but because for tax purposes they are viewed as chattel with a calculable fiat currency value, in that instant of evaluation, a legal exchange rate is created. People pay their rent in dollars rather than gold coins because they recognize that the dollar is constantly dropping in value, and so it's much better to hold the gold than hold the dollars.

I guess my question is: if you have the choice between paying in Bitcoins and paying in Fed Notes, and you believe BTC have long-term value, why would you choose to hold the Fed Notes and pay in BTC?

Trade volume on the exchanges is fairly low right now FWIW (at time of last checking).

Altruism. I recognize that it's in my immediate self-interest to divest myself of fiat bankster paper and hold onto hard money as much as possible, but at the same time, hoarding BTC won't help to develop and promote Bitcoin. We need them circulating around the general economy. So be good and pay with BTC if it's possible; you can always buy, mine, earn or steal* more at a later date. :)

* OK, scratch that one: stealing is possible but very bad. I can't endorse that.

This.
I appreciate that B$ value is generally appreciating but for it to remain a valid currency and not just some junk bond system where everyone holds on to them until they ultimately become worthless we need to have them circulating.

You should use whichever currency is less valuable to you at the margin. If I found myself with mostly dollars somehow or even an even split you better bet I'm going to use the dollars. As it is I have close to the bare minimum amount of dollars I feel comfortable with so if I want some gadget or some nuts I buy with bitcoin.

I don't do it explicitly, but a good strategy is to determine some % of your assets you want to be held denominated in bitcoins and rebalance as convenient. You could possibly rebalance with purchases. This has the benefit of mostly buying low and selling high but also takes your complete situation into account.

Other than as a developing currency it needs to be used, saving using bitcoin would be good.

It is beneficial to separate the functions of value preservation and payment medium in a currency.

If you are comfortable with having about 50% of your net worth in gold, 25% in bitcoin and 25% in USD, this is your portfolio allocation.

When you need to make a transaction, you just pick the currency that is most suitable for that case (often it is USD, but could be BTC if the merchant eg. offers 5% off, hardly ever it's gold).

If the portfolio goes unbalanced, periodically adjust the components by selling and buying in the exchange.

Gresham's Law does not apply. You are free to hoard any currencies in any ratios you wish, and transact however you wish. Furthermore there are exchanges and floating exchange rates.

Here is how I make it:

I have my general Bitcoins that I save (not very much, though).

Everytime I want something for my Fiat, I look if I can get it with BTC somewhere. If I can, I buy BTC for Fiat and then buy the product with BTC.

It cost you nothing extra expect for a little time (you would have spend the money anyway) and this helps the BTC community grow.

Sadly, expect from a view games there hasn't been much that I could get, but this will change.

Bitcoins have doubled, then doubled again multiple times. I'm sure the trend will continue.


If we follow what's obvious, which that when bitcoins break through to mainstream the value will skyrocket (especially if real world currencies start collapsing due to enormous debt) then the logical thing to do is hold on to bitcoin and not spend a single cent worth.



But if we all did that then the value of bitcoin will drop to zero and no longer exist.



The situation is irony at it's best.

Because you can effortlessly trade BTC/USD, they are really only two sides of the same coin.

Your anticipation of the future exchange rate may affect your propensity to consume vs. save, but the selection of payment method is a totally detached matter. Because you can always adjust your balances in the exchanges.

And this is precisely why Mr BTC10k Pizza did not, in fact, spend $300.000 on a pizza.