Merge branch 'master' of https://git.contrapeso.xyz/pablo/pablohere
This commit is contained in:
Pablo Martin
commit
83551f4054
1 changed files with 133 additions and 147 deletions
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@ -1,152 +1,138 @@
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<!DOCTYPE html>
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<!DOCTYPE html>
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<html>
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<html>
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<head>
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<title>Pablo here</title>
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<meta charset="utf-8" />
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<meta viewport="width=device-width, initial-scale=1" />
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<link rel="stylesheet" href="../styles.css" />
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</head>
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<body>
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<head>
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<main>
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<title>Pablo here</title>
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<h1>Hi, Pablo here</h1>
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<meta charset="utf-8" />
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<p><a href="../index.html">back to home</a></p>
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<meta viewport="width=device-width, initial-scale=1" />
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<link rel="stylesheet" href="../styles.css" />
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</head>
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<body>
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<main>
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<h1>Hi, Pablo here</h1>
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<p><a href="../index.html">back to home</a></p>
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<hr />
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<section>
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<h2>Gresham's Law has nothing to do with Bitcoin</h2>
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<p>
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This is going to be a thorough explanation for a simple thing, but we
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will take it slow since this topic somehow causes loads of confusion.
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</p>
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<p>
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Okay, so there are a lot of people in Bitcoin circles who talk about
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<a href="https://en.wikipedia.org/wiki/Gresham%27s_law" target="_blank" rel="noopener noreferrer">Gresham's
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Law</a>. They often say, “Gresham's Law states that bad money drives out
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good money”, then relate it to Bitcoin and the USD, and finally
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proceed to reason all sort of of things on top of that. But here's
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some very much needed clarification: Gresham's law has nothing to do
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with Bitcoin's relationship to the USD. In fact, it actually has
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nothing to do Bitcoin, or with the current USD for that matter.
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</p>
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<p>
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Gresham's Law is relevant to a very specific type of monetary system:
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when we used coins that contained precious metals (spoiler: we don't
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live in that period of history anymore). The law states that bad money
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drives out good money, but what a lot of Bitcoiners seem to miss is
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the actual meaning of “good” and “bad” in this context. People tend to
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|
interpret “good” and “bad” as meaning “hard” and "easy" money, so they
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reason something like: “Because Bitcoin is harder than the USD,
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Gresham's law applies here.” But that is not what Gresham's law is
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about at all.
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</p>
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<p>
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In the context of Gresham's law, “good” and “bad” refer to face value
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versus commodity value. That doesn't ring a bell? Let me explain:
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</p>
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<p>
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Imagine a magic land where there is only one type of coin. There's no
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other money — just this one coin. These coin states on themselves that
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they contain one gram of gold, and right now, they really do contain
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one gram of gold. Everyone uses it, and everyone is happy. There's no
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“bad” money, no “good” money — it's all nice and simple.
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</p>
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<p>Now, let's spice it up a bit.</p>
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<p>
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After some time, a cheeky bastard (typically, a king) comes along and
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starts making coins that look exactly like the original coins. I'll
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call these the bad coins. The original coins will be the good coins.
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Both types of coins say on them “one gram of gold,” but the bad coins
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only have half a gram of gold actually in them (hence why they are
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bad).
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</p>
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<p>
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So, to recap:<br />
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- Good coins: one gram of gold on the coin, and actually one gram of
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gold inside.<br />
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- Bad coins: one gram of gold on the coin, but only 0.5 grams of gold
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|
inside.
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</p>
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<p>This is where Gresham's Law applies.</p>
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<p>
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People in this coiny fantasy land are not stupid — they know that the
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gold content is what matters. At some point, someone will realize the
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bad coins don't have as much gold as they claim and will develop a
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preference for the good ones. So, if I'm John the Blacksmith and I
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want to buy some iron, and I have a stash of coins — some good, some
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bad — I would rather keep the good coins and spend the bad coins. Why?
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Because I want to keep as much gold as possible, of course.
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</p>
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<p>
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What happens eventually is that people grow into the habit of trying to get
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rid of the bad coins and hold on to the good coins. They exploit the
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confusion created by the fact that all coins have the same face value
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|
(it says “one gram” on all coins, so everyone assumes they're worth
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|
the same), even though the actual commodity value (the gold inside)
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|
differs.<a href="#footnote-1">[1]</a>
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</p>
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<p>That is the quick explanation of Gresham's law.</p>
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|
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<p>
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|
Now, back to the original point: what are the face value and commodity
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|
value of Bitcoin?
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|
</p>
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|
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||||||
|
<p>
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||||||
|
That makes no sense! Bitcoin is not a physical coin with metal in
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|
it. It has no concept of face and commodity value. And neither does the
|
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|
USD nowadays. Therefore, Gresham's law has absolutely nothing to do
|
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|
with Bitcoin, the USD and any preferences the world might develop
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|
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
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|
<a href="https://river.com/learn/terms/g/greshams-law/" target="_blank" rel="noopener noreferrer">massive
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|
exchanges with a great reputation.</a>
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|
</p>
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|
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|
<p id="footnote-1" class="footnote">
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|
<em>[1] Not relevant to the point of this post, but it's worth noting
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|
that Gresham's Law situation is not always sure to happen in the
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||||||
|
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"
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|
rel="noopener noreferrer">Thier's Law</a>
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|
instead.</em>
|
||||||
|
</p>
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||||||
<hr />
|
<hr />
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||||||
<section>
|
<p><a href="../index.html">back to home</a></p>
|
||||||
<h2>Gresham's Law has nothing to do with Bitcoin</h2>
|
</section>
|
||||||
<p>
|
</main>
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||||||
This is going to be a thorough explanation for a simple thing, but we
|
</body>
|
||||||
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"
|
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||||||
rel="noopener noreferrer"
|
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||||||
>Gresham's Law</a
|
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||||||
>. 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 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>
|
</html>
|
||||||
Loading…
Add table
Add a link
Reference in a new issue