Gresham's Law and Bitcoin

[joker_josue]

It's a simple reasoning. If a coin is made of silver, it is easily worth 1$, but the amount of silver that this coin has is worth 2$. It's worth melting down that coin and selling the silver, rather than using the coin to buy something for 1$.

But, it explains the theory of Gresham's Law better.

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.

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?

[garlonicon]

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?

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.

[Alpha Marine]

Could something like this happen to Bitcoin?
In other words, are people starting to want to save their BTC coins so much that their value is lost?

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.

[notocactus]

Yes, because people wouldn't sell their coins below the costs of producing them.

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.

[m2017]

This situation sometimes occurred when the money in circulation was made of valuable metals (gold, silver and bronze). People preferred to spend coins with a lower metal value, to save those with a higher metal value. With inflation, coins with a higher metal value began to have a nominal value lower than the value of the metal they were made with, causing people to start melting these coins to obtain the metal. Thus, bad coins ended up dominating the market, and good coins disappeared.

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.

Could something like this happen to Bitcoin?
In other words, are people starting to want to save their BTC coins so much that their value is lost?

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.

[Jojos]

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.

[mindrust]

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.

[Trilli7777]

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

[Easteregg69]

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.

[Kelward]

Could something like this happen to Bitcoin?
In other words, are people starting to want to save their BTC coins so much that their value is lost?

This could happen to Bitcoin, and I believe we need to distinguish between bad money and good money.

For me, Bitcoin is the good money, while fiat is the bad money. Why? As stated in "Gresham's Law," bad currency tends to drive good currency out of the market. When we refer to the market, it could mean investment, which means Bitcoin gets pushed out so people can use it primarily as a store of value, while fiat is used for daily transactions.

However, this doesn’t mean Bitcoin will become obsolete or lose its value. Just like gold, it’s not used for daily transactions, but its value appreciates over time.

I can liken the concept to your narration, Bitcoin is the good money because it's a store of value and that is why people hodl it. Fiat becomes the bad money that is commonized and people prefer to use it for the payment of their daily needs. Most people that holds Bitcoin will rather not spend it because they know that the value will continue to increase in the future, so they'll rather spend fiat that can be vulnerable to inflation. Although in practical the high value of Bitcoin is making it to deviate as a digital cash that it was created to be. I however don't believe that the value of Bitcoin will be lost because people will rather hodl it than use it for p2p transactions. It can be likened to a valuable asset like gold, despite not using it for payment, it's value still retains.

[FortuneFollower]

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.

Don't want to keep the vector you've got for it regarding Trump - but in general, for now, crypto is now used for some transactions for some services. Does it make the overall process dirty or different? (the idea of being rewarded for some service) No. Does it change because of the blockchain and the benefits of different coins for different reasons - yeah 

[dezoel]

This isn't some method where you could end up with terrible results based on currency part, it's something about how it could be great for the asset part of it. The Gresham law idea is because fiat is worse than bitcoin, that means we are going to use to pay for stuff, and we are going to keep our bitcoin to ourselves, which isn't wrong and I believe that is why the price of bitcoin went up.

After all, people wanted to keep their coins, and didn't want to use it as a currency, which made the market have less liquidity, and this is why the price went up when buyers couldn't find cheap coins. So, this makes bitcoin a bad currency to spend, but a great asset to keep hold of and that is how the past has happened so far. I am not saying we are going to end up with terrible results at any given moment, we could definitely see better results for currency part too, but that is not just because people think it's good, that part also is mainly because its expensive fees for tx and slow to move around.

[Smartprofit]

Bad money does indeed push good money out of the market. But this does not mean that good money disappears from our world. Gold bars and gold coins, for example, have not disappeared.

They are stored in the vaults of central banks of all countries of the world (since their value is generally recognized). This is what will most likely happen to Bitcoin over time. Bitcoin is an ideal reserve asset. Bitcoin will become part of the gold and foreign exchange reserves of central banks. To do this, it is enough to make changes to the documents of the Basel Committee.

At the same time, people will very rarely use Bitcoin in everyday transactions (instead of Bitcoin, digital currencies of central banks will be used for these purposes).

[goldkingcoiner]

1BTC=1BTC.

There is no such thing as a bad Bitcoin. And Bitcoin is also a new type of money, so a law based on the observation of ancient physical coins being melted down, might not even have an effect on BTC. How would you melt down a Bitcoin?

If governments start implementing "bad and good" Bitcoin, then they will have a problem trying to confiscate and stop the transactions of "bad" Bitcoin. In fact, they will find it an impossible task, since Bitcoin is decentralized and non-custodial(as long as you maintain control over your own personal, decentralized and non custodial wallet).

[joker_josue]

There is no such thing as a bad Bitcoin. And Bitcoin is also a new type of money, so a law based on the observation of ancient physical coins being melted down, might not even have an effect on BTC. How would you melt down a Bitcoin?

This is an interesting point. Bitcoin really is something new and different from everything that has been done throughout history in relation to money.

But society continues to apply traditional laws and rules associated with fiat. This should be stopped doing now.
Should we, as Bitcoin users, stop using these ideas in all scenarios?

[mindrust]

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.

Don't want to keep the vector you've got for it regarding Trump - but in general, for now, crypto is now used for some transactions for some services. Does it make the overall process dirty or different? (the idea of being rewarded for some service) No. Does it change because of the blockchain and the benefits of different coins for different reasons - yeah 

It doesn’t make it any different for me unless there will be some consequences but there will be some consequences if the coins I have in my wallet came from a blacklisted wallet. The exchange will freeze my deposit immediately if I send any coins to the exchange so in the end it makes a difference. I wish that wasn’t the way how things are but the reality is very different than what people would like it to be.

1 btc is indeed 1 btc as long as the exchange doesn’t seize your funds. Then 1 btc equals to zero btc. You are free to try.

[goldkingcoiner]

1 btc is indeed 1 btc as long as the exchange doesn’t seize your funds. Then 1 btc equals to zero btc.

Same goes for fiat, if the bank decides to freeze your bank account. The solution to having 1 BTC = 1 BTC is to avoid giving the cryptocurrency exchanges a reason to freeze your account. Or better yet, do not use centralized exchanges.

[SamReomo]

I don't think that Gresham's law is applicable on Bitcoin because as we all know that 1 Bitcoin is always going to be one Bitcoin, due to market conditions Bitcoin might lose its current value but that thing will apply to all Bitcoin not just 1 Bitcoin or in simple words there's no concept of good or bad money when it comes to Bitcoin. If someone still wants to apply then concept then in laymen terms bad Bitcoin might be the ones with high AML score and the good one might be the ones with low AML score, but I guess there are services that can lower that AML score of Bitcoin.

[mindrust]

1 btc is indeed 1 btc as long as the exchange doesn’t seize your funds. Then 1 btc equals to zero btc.

Same goes for fiat, if the bank decides to freeze your bank account. The solution to having 1 BTC = 1 BTC is to avoid giving the cryptocurrency exchanges a reason to freeze your account. Or better yet, do not use centralized exchanges.

I agree we shouldn’t be using centralized crypto exchanges but sadly they are the FIAT gate keepers so we don’t really have much alternatives in reality. P2P isn’t always the most convenient solution.

You are also right with your FIAT example however, the exchanges lock the crypto accounts much more times than banks lock their customers FIAT accounts so again, the reality is somewhat different than what people want to believe.

In the end sending crypto to a crypto exchange is dangerous especially if you are not sure about the origin of your funds.

Try it and let us know the results if you like.

[FortuneFollower]

1 btc is indeed 1 btc as long as the exchange doesn’t seize your funds. Then 1 btc equals to zero btc.

Same goes for fiat, if the bank decides to freeze your bank account. The solution to having 1 BTC = 1 BTC is to avoid giving the cryptocurrency exchanges a reason to freeze your account. Or better yet, do not use centralized exchanges.

Agreed.
Or only accept those who are probably not interested to have money with a black mark on em