Quote from: deisik on December 05, 2013, 03:02:18 PM

Quote from: PrivateWorld on December 05, 2013, 02:51:09 PM

Quote from: deisik on December 05, 2013, 06:42:15 AM

All this has a very simple explanation without ever offsetting Gresham's Law. In fact, it actually confirms this law. Let's assume for a moment that Gresham's Law is infallible and fully applicable in this case. Really, if the principle behind it has been known since Ancient Greece, then why should it fail right now?

Simply put, Gresham's Law says that one money is better than another. If that's true, this would inevitably mean that people still think dollars (or whatever) are better than bitcoins because they prefer to pay in Bitcoin while withholding their dollars, no other way around. Why would they? Deep inside they don't believe Bitcoin will be a success in the long term and are just trying to make use of an opportunity that Bitcoin high price gives them...

And everything is in strict accordance with Gresham's Law

I guess it comes down to whether you believe bitcoin is a better money than the fiat (which was my underlying assumption - because it's inelastic ) vs what you're saying - that it's not and people are utilizing the higher prices in bitcoin to capture the value by spending it.

If you had a time machine which would allow you to travel to the future (say, two-three years ahead of now) and saw the Bitcoins were universally accepted and dollar banned (Bitcoin addicts' pipe dream), would you spend your coins instead of dollars in the present?

There is a simpler reason Gresham's Law applies. Because the price is going up. Currencies typically don't gain much international exchange value in a year, maybe 10%. And most people don't exchange a currency internationally any way.

Bitcoin is an investment, not a currency. See the link to the chart in my prior post which serves as evidence.

And when the price starts going down (meaning when no more greater fools to bring more capital in), then the absence of significant transactions demand, means Bitcoin won't be anything. Poof. Then the government steps in...

Thus the scenario of the OP is never possible with Bitcoin any way, it will fail much sooner than that. Fractional reserves and lending in Bitcoin are not possible while the price is so volatile.