Quote from: Lea Calot on June 23, 2011, 02:55:09 AM

It's fundamental economics, specifically Greshams Law: http://en.wikipedia.org/wiki/Gresham's_law

CITE: "This law applies specifically when there are two forms of commodity money in circulation which are required by legal-tender laws to be accepted as having similar face values for economic transactions. The artificially overvalued money tends to drive an artificially undervalued money out of circulation and is a consequence of price control."

If people have to choose among different types of money they spend the "artificially" overvalued money and hoard "the real money". And looking at bitcoins, they actually have several advantages over paper money.

Dead on, I was going to reply with this but you beat me too it. There's another project called AOCS (http://www.opencurrency.com/) that uses precious metals to transact with. Their suggested solution for Gresham's law is to ask the merchants give a slight discount to people who use AOCS approved coinage vrs dollars. I think the same strategy could work well for merchants with bitcoins.