Bitcoin Forum

Interesting note on the phenomenon of good money driving bad money out of existence.

Generally the monetary cycle is that of bad money driving good money into hiding, a rapidly debasing currency causes the accumulation of a non-debasing currency. This persists until enough non-debasing/sound currency has been accumulated. Then the sound currency can very rapidly drive out the debased currency when there are sufficient amounts of it to supplant the debased currency in trade.

This is similar to what happened in Zimbabwe during the hyperinflation recently, Gideon Gono was printing money like there's no tomorrow. This causes every observant Zimbabwean to store any other form of value they could (Rands, Pulas, USD (sadly) and microscopic granules of gold). Slowly the levels of these rose, till it eventually reached the point where enough sound money had entered the system and 100% service levies could be charged against customers still paying in Zim Dollars. This completely broke the Zimbabwean governments ability to issue currency.

This stopped the mad rush for real value goods leading to the constant shortages in stores and lead to a very quick replenishment of the supply chain (about 1 month and most everything was available for purchase again)

Since BitCoins are neither inflationary nor debt based, if enough of an economy can develop around it, it will become an incredible store of value. It is by definition deflationary (since it's economy grows and it's quantity stays stable). BitCoins are very good money and I hope they drive out the very bad money.

-Schalk

"In the long run, there is no such thing as an unpopular government"
-Ludwig von Mises

I like your Mises quote.  Ever read Alongside Night?

I think you wanted to say that bad money drives good money into hiding.

This is a very good point, its called the Gresham Law, although Gresham did not discover it and actually promoted bad money.

I think this can be a problem for bitcoin, since people will tend to use bad money (dollars, euros, etc...) before spending bitcoins. On the other side since bitcoin is not backed by the guns of any government maybe it pushes in the other direction.

Error fixed, thanks.

I think the economic need exists for sound currency. If currency and stores of value do not presently co-exists as one item people will attempt to store value in some form and conduct trade in the currency.

Gold and silver historically have been the commodities of highest liquidity, they held intrinsic properties that made them easy to trade, hide, divide, etc. and they were very rare. If crypto-currency can deliver on all these properties and in addition to all that facilitate instantaneous global trade and provide anonymity, it is, at least in theory, better than gold.

To kick start the process though and for bitcoins to have any value we need a functioning economy willing to accept bitcoins in exchange for goods and services. This is probably the only important element to achieve next. Everything else will not matter if this doesn't happen.

I think people would much rather spend bitcoins in a collapsing international monetary system if they could do so without constant meddling from financial regulations. Even if they don't though, enough people should realize the potential of bitcoins as a store of value while other currencies crash.

-Schalk

Thanks,

No never read it, read a quick synopses. Are you referring to counter-economics?

Correct.

The software is, overall, sufficient for a factor-100 or more increase in transaction volume at this time.  Building a functioning bitcoin economy is what gives / will give bitcoins their value.

I would argue that building the bitcoin economy is more important than further bitcoin software modification.  The lone feature I think is sorely missing is the much-discussed "lightweight client."

I'm kind of new but I assume you mean J2ME, iPhone app type client? I agree totally, there needs to be a simple way to just pay.

Imagine bitcoin on cell phones in a country like Somalia or Zimbabwe!

Yes, but it's long winded.  Have you read the white paper or the docs?