Doc Orange on Nostr: Gresham's law: "bad money drives out good" I had someone ask me how Bitcoin could ...
Gresham's law: "bad money drives out good"
I had someone ask me how Bitcoin could succeed given this law. But Gresham's law isn't a law like the laws of physics - rather, it's describing people's natural responses to incentives. If bad money really did drive out good, people would use dirt as money, or perhaps even the words "thank you" uttered by the purchaser. Clearly this isn't a universal law. Instead it is the outgrowth of two different types of money with different intrinsic values being declared by governments to have the same face value. When the US government replaced silver coins with silver plated coins, businesses were forced to accept both types of coins at the same dollar-denominated value. So when someone needed to buy something, they would want to spend the coins that were worth less and hold on to the ones that were worth more.
I had someone ask me how Bitcoin could succeed given this law. But Gresham's law isn't a law like the laws of physics - rather, it's describing people's natural responses to incentives. If bad money really did drive out good, people would use dirt as money, or perhaps even the words "thank you" uttered by the purchaser. Clearly this isn't a universal law. Instead it is the outgrowth of two different types of money with different intrinsic values being declared by governments to have the same face value. When the US government replaced silver coins with silver plated coins, businesses were forced to accept both types of coins at the same dollar-denominated value. So when someone needed to buy something, they would want to spend the coins that were worth less and hold on to the ones that were worth more.