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The Perils of Gresham's Law in Bitcoin Adoption
521 sats \ 2 comments \ @r3drun3 15 Dec 2023 bitcoin
As the world increasingly turns its attention toward Bitcoin as a potential global currency, it's crucial to examine the potential pitfalls that may hinder its widespread adoption. One such challenge is posed by Gresham's Law, a principle that could impede Bitcoin's journey to becoming a universally accepted form of money.
Gresham's Law, often simplified as "bad money drives out good money" suggests that in a system where multiple forms of money are in circulation, individuals tend to hoard the currency perceived as more valuable, while using the inferior one for transactions.
Consider the following practical example: Imagine having a total of $40,000 in the bank and 1 Bitcoin in your wallet. Now, envision needing to make a payment of $1,500 in value to a merchant who also accepts Bitcoin.
In all honesty, respond to this question: How many of you would choose to make the payment in Bitcoin?
Personally, I would opt to pay in dirty fiat currency and retain the more robust and sound form of money for myself. Essentially, this scenario illustrates Gresham's Law.
We have already witnessed this phenomenon with gold. It is important to specify that this does not imply a decrease in the value of Bitcoin; after all, no one pays their bills in gold, but the material is worth tens of thousands of dollars per kilogram!
I am curious to hear your opinions on this matter.
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100 sats \ 0 replies \ @nerd2ninja 15 Dec 2023
If you literally just search "Gresham's law" in SN's search bar you'll get tons of posts of people talking about it. This one was the best read so far in my opinion:
#218967
Imagine having a total of $40,000 in the bank and 1 Bitcoin in your wallet.
This is already quite the assumption lol. If you have the mindset that the typical Bitcoiner has (after a cycle at least), you're putting your savings into Bitcoin. I would call $40k savings money for sure. It would cost more money to do the conversion to FIAT to pay this merchant because actually $0 is in savings and only $500 is in checking (depending of course on many many things). Let's say an exchange would charge 1% (not too uncommon these days) to convert to FIAT just for you to make this payment with a credit card that's going to charge the merchant 2%. Doing all of that just doesn't make sense because all of a sudden the goods or services now cost a whole 3% more than if you had just not done all of that and spent your Bitcoin instead.
While not sustainable enough to actually compete against other businesses alone, Bitcoin accepting businesses also have a "small business/local community" effect. I mean that phenomenon where people pay more for stuff because it says "Made in the USA" on it or "Environmentally friendly" or "Support small businesses here" those kinds of things. in many cases, a "Bitcoin accepted here" sign attracts Bitcoiners who notice away from competition. For example, I'm not much of a wine drinker, but I take interest in Peony Lane wine anyway.
I guess this is all just to say, the world is a little more complex than the generalizations we make of it from time to time.
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0 sats \ 0 replies \ @clr 15 Dec 2023
How many of you would choose to make the payment in Bitcoin?
Every time they let me.
If you only have bitcoin, why would you want to convert to fiat to pay, if you can pay directly in bitcoin?
The question should be: why do you still have fiat in the first place? Why do you sell yourself for fiat instead of asking to be paid in bitcoin?
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