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<!DOCTYPE html>
<html>
<head>
<head>
<title>Pablo here</title>
<meta charset="utf-8" />
<meta viewport="width=device-width, initial-scale=1" />
<link rel="stylesheet" href="../styles.css" />
</head>
</head>
<body>
<body>
<main>
<h1>Hi, Pablo here</h1>
<p><a href="../index.html">back to home</a></p>
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</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
<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
@ -34,12 +31,12 @@
</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
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
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.
@ -47,14 +44,14 @@
<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:
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
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>
@ -90,17 +87,15 @@
</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
>
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 proper explanation of Gresham's law.</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
@ -108,8 +103,8 @@
</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
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.
@ -118,35 +113,26 @@
<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
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
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
>
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
<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
>
<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>
</body>
</html>