Quote from: nybble41 on April 25, 2013, 09:55:34 PM

This is actually based on a misinterpretation of Gresham's law, commonly abbreviated "bad money drives good money out of circulation". If you look at the full form of the law it's actually referring to money which is overvalued and undervalued, respectively, when compared to the market price. For example, under bimetallism in the U.S. there was a legally-fixed exchange rate between gold and silver coins, while the actual market values of the two metals fluctuated. When the law caused gold coins to become undervalued, people hoarded them and spent their silver, and vise-versa. The coins were legal tender, so merchants had no choice but to accept them in payment of debts at the fixed exchange rate, even if the coins were currently worth less than their face values.

In the case of Bitcoin there is no fixed exchange rate; if the value is generally expected to increase over time, that will affect the net present value to the merchant as well as the buyer. The increase or decrease will not cause bitcoins to be under- or over-valued with respect to other free-market currencies. Gresham's law would only apply if there was a fixed exchange rate between bitcoins and fiat currency. For example, if the U.S. government declared that USD $1000 was equivalent to 1 BTC for the purposes of legal tender, when the actual exchange rate was $1100/BTC, people would have an incentive to settle their debts with the overvalued USD rather than the undervalued BTC.

I think you are right, Gresham's law in its proper form might not apply to Bitcoin. Still there are people seeing bitcoins as undervalued, choosing to keep their bitcoins and pay with dollars. My point was that this is not a real issue for Bitcoin. As long as (enough) people behave remotely rationally, the economy will self-regulate:
Too much hoarding will reduce the perceived "fair" value of bitcoins, thus reducing the hoarding.
High circulation/usage will increase the perceived value, thus increasing hoarding/reducing circulation.

I think we will see oscillations in the valuation becoming more damped as more and more people, and maybe speculators in particular, enter the Bitcoin economy.

rta

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