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<!DOCTYPE html>
<html>
<head>
<title>Pablo here</title>
<meta charset="utf-8" />
<meta viewport="width=device-width, initial-scale=1" />
<link rel="stylesheet" href="../styles.css" />
</head>
<body>
<main>
<h1>Hi, Pablo here</h1>
<p><a href="../index.html">back to home</a></p>
<head>
<title>Pablo here</title>
<meta charset="utf-8" />
<meta viewport="width=device-width, initial-scale=1" />
<link rel="stylesheet" href="../styles.css" />
</head>
<body>
<main>
<h1>Hi, Pablo here</h1>
<p><a href="../index.html">back to home</a></p>
<hr />
<section>
<h2>Gresham's Law has nothing to do with Bitcoin</h2>
<p>
This is going to be a thorough explanation for a simple thing, but we
will take it slow since this topic somehow causes loads of confusion.
</p>
<p>
Okay, so there are a lot of people in Bitcoin circles who talk about
<a href="https://en.wikipedia.org/wiki/Gresham%27s_law" target="_blank" rel="noopener noreferrer">Gresham's
Law</a>. They often say, “Gresham's Law states that bad money drives out
good money”, then relate it to Bitcoin and the USD, and finally
proceed to reason all sort of of things on top of that. But here's
some very much needed clarification: Gresham's law has nothing to do
with Bitcoin's relationship to the USD. In fact, it actually has
nothing to do Bitcoin, or with the current USD for that matter.
</p>
<p>
Gresham's Law is relevant to a very specific type of monetary system:
when we used coins that contained precious metals (spoiler: we don't
live in that period of history anymore). The law states that bad money
drives out good money, but what a lot of Bitcoiners seem to miss is
the actual meaning of “good” and “bad” in this context. People tend to
interpret “good” and “bad” as meaning “hard” and "easy" money, so they
reason something like: “Because Bitcoin is harder than the USD,
Gresham's law applies here.” But that is not what Gresham's law is
about at all.
</p>
<p>
In the context of Gresham's law, “good” and “bad” refer to face value
versus commodity value. That doesn't ring a bell? Let me explain:
</p>
<p>
Imagine a magic land where there is only one type of coin. There's no
other money — just this one coin. These coin states on themselves that
they contain one gram of gold, and right now, they really do contain
one gram of gold. Everyone uses it, and everyone is happy. There's no
“bad” money, no “good” money — it's all nice and simple.
</p>
<p>Now, let's spice it up a bit.</p>
<p>
After some time, a cheeky bastard (typically, a king) comes along and
starts making coins that look exactly like the original coins. I'll
call these the bad coins. The original coins will be the good coins.
Both types of coins say on them “one gram of gold,” but the bad coins
only have half a gram of gold actually in them (hence why they are
bad).
</p>
<p>
So, to recap:<br />
- Good coins: one gram of gold on the coin, and actually one gram of
gold inside.<br />
- Bad coins: one gram of gold on the coin, but only 0.5 grams of gold
inside.
</p>
<p>This is where Gresham's Law applies.</p>
<p>
People in this coiny fantasy land are not stupid — they know that the
gold content is what matters. At some point, someone will realize the
bad coins don't have as much gold as they claim and will develop a
preference for the good ones. So, if I'm John the Blacksmith and I
want to buy some iron, and I have a stash of coins — some good, some
bad — I would rather keep the good coins and spend the bad coins. Why?
Because I want to keep as much gold as possible, of course.
</p>
<p>
What happens eventually is that people grow into the habit of trying to get
rid of the bad coins and hold on to the good coins. They exploit the
confusion created by the fact that all coins have the same face value
(it says “one gram” on all coins, so everyone assumes they're worth
the same), even though the actual commodity value (the gold inside)
differs.<a href="#footnote-1">[1]</a>
</p>
<p>That is the quick explanation of Gresham's law.</p>
<p>
Now, back to the original point: what are the face value and commodity
value of Bitcoin?
</p>
<p>
That makes no sense! Bitcoin is not a physical coin with metal in
it. It has no concept of face and commodity value. And neither does the
USD nowadays. Therefore, Gresham's law has absolutely nothing to do
with Bitcoin, the USD and any preferences the world might develop
between the two.
</p>
<p>
Hopefully, this explanation helps make things clear. From now on, if
you want to keep your public image intact, please refrain from
invoking Gresham's law when discussing Bitcoin and USD — because doing it
shows you don't know what Gresham's Law is actually about. Don't feel
too bad if it happened to you though: it can happen even to
<a href="https://river.com/learn/terms/g/greshams-law/" target="_blank" rel="noopener noreferrer">massive
exchanges with a great reputation.</a>
</p>
<p id="footnote-1" class="footnote">
<em>[1] Not relevant to the point of this post, but it's worth noting
that Gresham's Law situation is not always sure to happen in the
described scenario. If the difference between the good and bad coins
is massive, and no force opposes it, the market might jump into
<a href="https://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gresham's_law_(Thiers'_law)" target="_blank"
rel="noopener noreferrer">Thier's Law</a>
instead.</em>
</p>
<hr />
<section>
<h2>Gresham's Law has nothing to do with Bitcoin</h2>
<p>
This is going to be a thorough explanation for a simple thing, but we
will take it slow since this topic somehow causes loads of confusion.
</p>
<p>
Okay, so there are a lot of people in Bitcoin circles who talk about
<a
href="https://en.wikipedia.org/wiki/Gresham%27s_law"
target="_blank"
rel="noopener noreferrer"
>Gresham's Law</a
>. They often say, “Gresham's Law states that bad money drives out
good money”, then relate it to Bitcoin and the USD, and finally
proceed to reason all sort of of things on top of that. But here's
some very much needed clarification: Gresham's law has nothing to do
with Bitcoin's relationship to the USD. In fact, it actually has
nothing to do Bitcoin, or with the current USD for that matter.
</p>
<p><a href="../index.html">back to home</a></p>
</section>
</main>
</body>
<p>
Gresham's Law is relevant to a very specific type of moneteray system:
when we use coins that contained precious metals (spoiler: we don't
live in that period of history anymore). The law says that bad money
drives out good money, but what a lot of Bitcoiners seem to miss is
the actual meaning of “good” and “bad” in this context. People tend to
interpret “good” and “bad” as meaning “hard” and easy money, so they
reason something like: “Because Bitcoin is harder than the USD,
Gresham's law applies here.” But that is not what Gresham's law is
about at all.
</p>
<p>
In the context of Gresham's law, “good” and “bad” refer to face value
versus commodity value.That doesn't ring a bell? Let me explain:
</p>
<p>
Imagine a magic land where there is only one type of coin. There's no
other money — just this one coin. The coin states on itself that it
contains one gram of gold, and right now, it really does contain one
gram of gold. Everyone uses it, and everyone is happy. There's no
“bad” money, no “good” money — it's all nice and simple.
</p>
<p>Now, let's spice it up a bit.</p>
<p>
After some time, a cheeky bastard (typically, a king) comes along and
starts making coins that look exactly like the original coins. I'll
call these the bad coins. The original coins will be the good coins.
Both types of coins say on them “one gram of gold,” but the bad coins
only have half a gram of gold actually in them (hence why they are
bad).
</p>
<p>
So, to recap:<br />
- Good coins: one gram of gold on the coin, and actually one gram of
gold inside.<br />
- Bad coins: one gram of gold on the coin, but only 0.5 grams of gold
inside.
</p>
<p>This is where Gresham's Law applies.</p>
<p>
People in this coiny fantasy land are not stupid — they know that the
gold content is what matters. At some point, someone will realize the
bad coins don't have as much gold as they claim and will develop a
preference for the good ones. So, if I'm John the Blacksmith and I
want to buy some iron, and I have a stash of coins — some good, some
bad — I would rather keep the good coins and spend the bad coins. Why?
Because I want to keep as much gold as possible, of course.
</p>
<p>
What happens then is that people try to get rid of the bad coins and
hold on to the good coins. They exploit the confusion created by the
fact that all coins have the same face value (it says “one gram” on
all coins, so everyone assumes they're worth the same), even though
the actual commodity value (the gold inside) differs.<a
href="#footnote-1"
>[1]</a
>
</p>
<p>That is the proper explanation of Gresham's law.</p>
<p>
Now, back to the original point: what are the face value and commodity
value of Bitcoin?
</p>
<p>
That's makes no sense. Bitcoin is not a physical coin with metal in
it. It has no concept of face and commodity value. And neither is the
USD nowadays. Therefore, Gresham's law has absolutely nothing to do
with Bitcoin, the USD and any preferences the world might develop
between the two.
</p>
<p>
Hopefully, this explanation helps make things clear. From now on, if
you want to keep your public image intact, please refrain from
invoking Gresham's law when discussing Bitcoin and USD — because it
shows you don't know what Gresham's Law is actually about. Don't feel
to bad if it happened to you though: it can happen even to
<a
href="https://river.com/learn/terms/g/greshams-law/"
target="_blank"
rel="noopener noreferrer"
>massive exchanges with a great reputation.</a
>
</p>
<p id="footnote-1" class="footnote">
<em
>[1] Not relevant to the point of this post, but it's worth noting
that Gresham's Law situation is not always sure to happen in the
described scenario. If the difference between the good and bad coins
is massive, and no force opposes it, the market might jump into
<a
href="https://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gresham's_law_(Thiers'_law)"
target="_blank"
rel="noopener noreferrer"
>Thier's Law</a
>
instead.</em
>
</p>
<hr />
<p><a href="../index.html">back to home</a></p>
</section>
</main>
</body>
</html>