r/Bitcoin - Thiers' Law - the Reverse of Gresham's Law ...
r/Bitcoin - Thiers' Law - the Reverse of Gresham's Law ...
Gresham’s Law, and Honest, Stable, Good Money ...
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Redditors Save Bitcoin From Gresham’s Law. Or Did They ...
Why Gresham’s Law Means the Death of Bitcoin. « Smiling ...
Can illicit transaction and lack of privacy strip Bitcoin of its store of value properties (Meditation on the recent bust of child trafficing gang using Bitcoin)
There is a discussion that the narrative for value proposition of Bitcoin started as a low cost and fast medium of exchange, then shifted to "digital gold" or in other words store of value, but in light of lack of privacy and anonymity, Bitcoin may not live up to its promise. Here are my thoughts on that. Money cannot be a store of value without being a medium of exchange, if no one was willing to take Bitcoin from you in exchange for other goods including other monies, Bitcoin would not have value. Clearly, this is not the case. No rational agent would spend appreciating money when they can pay with depreciating money. If Gresham's law is hard to grasp, the pizza story of Laszlo Hanyecz helps to get it. At least Laszlo made history. If you do it now - you will end up with regrets only. No Fortune articles about you will be written https://fortune.com/2018/02/26/laszlo-hanyecz-pizza-bitcoin/ At the high enough level of abstraction, money is an accounting layer for the economic value that essentially can be boiled down to work. It's a promise of future work. By design, fiat loses value over time. Bitcoin stores it. Free market has chosen Bitcoin to be money for its monetary properties = hardness. We can debate how and why it happened, but it's a fact. Now its salability increases like a snowball and it can't be stopped without catastrophic external forces. For ever-increasing salability/liquidity people don't need to want to spend it, they only need to be willing to accept it. This means it's guaranteed you can spend your Bitcoin at any moment when you urgently need to dip into your savings. I would argue that even if Bitcoin has no privacy at all it would still be the most superior money at the moment and the best savings preserving vehicle. Lack of anonymity would create extra risks of being targeted by bad guys though, but that's beyond the point. Censorship resistance is a feature of the Bitcoin protocol, which is not responsible for the censorship at fiat on- and off-ramps. If the transaction is valid and the government doesn't control the majority of the hashing power the tx cannot be stopped. Even with high volatility which was actually predicted as a quality of a good becoming global money, Bitcoin is already (surprisingly) used as a Unit of Account by some traders measuring their wealth and by Trace Mayer for accounting. And btw, Gresham's law applies to illicit transactions too. Most criminal activities are paid with USD or other fiat currencies. Reporting such news doesn't generate clicks, traffic and therefore ad revenue.
CMV: Bitcoin's replacement of all other currencies reign as monopoly over the global economy is inevitable
Currencies compete with one another based on their monetary properties. The role of currency is to serve as a ledger of account for an economy. Looking at past examples of intra-currency competition shows that whichever one has superior monetary properties will win out. See Their's Law. Also see Gresham's law Bitcoin is a new entrant to the currency market, and has properties unlike any other currency, most notably its supply is unexpandable beyond a fixed limit and is immortal (due to its decentralized nature). As such Bitcoin will compete against all other currencies gaining market share until 100%. Furthermore, its large network-effect lead protects it from all other crypto competitors--in other words, it takes a large advantage in monetary properties to overcome an established currency and while Bitcoin is overcoming that to currencies like USD and gold, it is not possible to have enough advantage over Bitcoin to scale it's moat as it is too close to "perfect" money--e.g. a perfect ledger
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Popular misconceptions about money, Bitcoin, and how all the competition between currencies will play out
Money is best seen as a social behavior or accounting tool a society uses to track favors. Sometimes a currency may have a non-monetary value (often called ‘intrinsic’ value) and a monetary value. All things being equal, a currency that has no non-monetary (intrinsic) value is a better currency than one that does. An economy does not need an expanding money supply to function. Inflation (monetary) cannot happen without an inflator; that is to say that the money supply does not grow uniformly, but rather some entity is granted new currency units which provides them a significant economic advantage other users of that currency (usually) do not have. Many people view the act of spending currency “using money”. This is an incomplete view that can lead to some very wrong conclusions. A better understanding of the use of a currency is that someone begins using a currency when he accepts it, continues using while holding it, and ends their use of it when they finally spend it. Savings...e.g. money stored under a matress, provides individuals, corporations, governments, and whole economies an ability to absorb economic disruption and take advantage of opportunities that arrive by remaining uncommitted to a particular investment. That is to say savers or hoarders provide a great deal of benefit to the underlying economy. In addition to this benefit, hoarding a currency provides it with liquidity which is essential to having a viable currency. Destruction of a currency such as if someone burned his or her own money bin, is effectively a form of altruism or charity, whereby they transfer their economic power to others via monetary contraction. That is, if someone were to acquire a bunch of money over their lifetime, and then burn it all, this person should be viewed as a selfless hero. A deflationary (or fixed supply) currency with equal or superior monetary properties cannot exist in equilibrium with inflationary currencies. Bitcoin is a deflationary currency with superior monetary properties vs ALL traditional currencies (fiat, gold, etc). And will compete against each of those currencies until they all die or bitcoin dies. Also Bitcoin is immortal. Money is a monopolistic market, where network advantages are very significant and provide a substantial barrier to new comers. Basically in order to overcome a lead in network effect advantage, a competing currency would have to offer very significant benefits over the market leader. Bitcoin appears to be doing this with respect to USD/EUGold/Etc, but the idea that alt coins could overtake Bitcoin would require an economic consensus for everyone to switch. And we all know how difficult a consensus change is to achieve; it would be the equivalent of someone saying they think an Elvis impersonator could come about that would supplant the original in popularity because he offers NEW features the original doesn’t, like officiating low-class weddings. Thus, a rational person could conclude that one day soon, everyone will be forced to accept Bitcoin, as no one will accept any other currencies. See Their’s Law. Governments obtain a fairly significant amount of their funding through seigniorage. Bitcoin will cut off this avenue of funding, so in addition to destroying gold and all fiat and altcoin currencies, it will impose financial discipline on governments, effectively putting an end to big government and unnecessary wars. To sum it up, Bitcoin is a panacea that cures the world’s economic and financial ills.
I am a long-time BTC hodler since 2010. This is what I will do if SegWit wins
It is currently not clear which side will win: the true Satoshi's Bitcoin vision or Blockstream's vision. I have absolutely no single doubt that Blockstream's vision of Bitcoin is wrong, so CoreCoin holds no value for me at all. I also believe that SegWit-as-soft-fork is only the beginning. Next will be mandatory(forced) opt-out RBF, more stalling of block size increase for few years (until Lightning Network is finished - which is never) and many other bad decisions. Blockstream and Core will drive Bitcoin into the ground, destroy it. If SegWit wins this war and we hard fork out of necessity, I will start selling CoreCoins and keep my UnlimitedCoins ("bad money drives out good" as Gresham's Law states). People who believe in the original Bitcoin's vision will probably do the same. Even if CoreCoin starts higher (like $600-$700) and Unlimited Coin starts lower ($100), this will be the case for me. Ultimately, value of CoreCoin will be obliterated by the incompetence and overgrown ego of the know-it-all dipshits at Blockstream and their dark masters. I find it unevitable that this is what will happen if Core wins this battle.
In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will disappear from circulation. The law was named after Sir Thomas Gresham, a sixteenth-century financial agent of the English Crown in the city of Antwerp, to explain to Queen Elizabeth I what was happening to the English shilling. Her father, Henry VIII, had replaced 40 percent of the silver in the coin with base metals, to increase the government's income without raising taxes. Astute English merchants and even ordinary subjects would save the good shillings from pure silver and circulate the bad ones; hence, the bad money would be used whenever possible, and the good coinage would be saved and disappear from circulation.
When people have a choice of which to spend and which to hoard, they will tend to hoard the money that is a better money. The problem for all forms of fiat is that they are inferior for holding. No one wants to hold a currency that is inflating. Fiat has become a hot-potato that everyone wants to get rid of and no one wants to be left holding. This is manifesting in the form of rapid gains across the entire cryptosphere, in practically all of the leading coins. The vast majority of people buying crypto today do not actually understand why this is happening, they have only identified it as a phenomenon that has now trended in the same direction long enough, for so many years, that they have significant confidence it will continue to rise. However this trend is not good news for the people that control fiat and derive a large part of their wealth and power from their ability to shift the cost of printing more money onto the population at large and thus to enrich themselves dishonestly. Note today that South Korea is undertaking an emergency meeting to figure out what to do about cryptocurrency investing after South Koreans "discovered" bitcoin recently and began going in deep. Cryptocurrency, in all its leading forms, being inherently a better money than any form of government fiat simply because it is not subject to the whims of human management and corruption, is becoming a prime way for the masses to save. This is on the doorstep to creating a viable competitor to the stock market as a way to save. A large amount of the money now tied up in cryptocurrency undoubtedly would've found its way into Wall St. and similar traditional investment vehicles like property, had cryptocurrencies not existed. So all fiat is inferior for holding, and this was good for the stock markets of the world and the property markets of the world. This is a problem because someone has to hold fiat. And if all the world begins trying to get out of fiat and into cryptocurrencies, that has potential to creates the nightmare scenario that the state dreads above all: hyperinflation as people rush to escape a failing currency and those left holding the bag last lose most. This is why the US government is concerned about bitcoin, why places like Russia and China keep announcing bans or controls and then walking back on those ideas when they realize that bitcoin transactions cannot be regulated by the state in any reasonable way (well, they could turn off the internet, but that would result in open revolt of the populace, rock and hard place), and why South Korea is concerned now. The worst-case scenario for government is total repudiation of their currencies, ala Ecuador. But at the same time, the US government, and many other governments, have become afraid to take a hard line against new technologies because they all want to ride the wave of technological innovation and earn taxes from new industries that pop up, and they would rather not chase those industries into other countries and find themselves left out of the new technological bonanza. This also helps explain why multiple cryptocurrencies are doing well instead of just one, because the leading cryptocurrencies all have the properties of a good currency, better than fiat, and cryptocurrencies won't actually have to compete strongly with each other until fiat is replaced or deprecated worldwide. So why has BTC done better than all other cryptocurrencies in terms of unit price to this date apart from inflation-arbitrage. It's primarily because of mindshare and exposure and good-press. Think of BTC as being to cryptocurrency what AOL was to the internet in the 90's. At that time, AOL had created its own walled-garden and was on-boarding large numbers of people into using the internet in a safe and idiot-friendly way, while offering none of the power-features of the real internet. For the purposes of this analogy, Bitcoincash is the real internet of the 90's. And while massive numbers of people got into the internet for the first time through using AOL, it wasn't long before they realized they lived in a walled garden and the real thing was on the other side of that wall, and the whole world ultimately made the jump to the real internet. That is why so many of us think BTC will do well in the short-term as people are on-boarding into cryptocurrency through BTC, but that in the long-term, people will begin to realize that BCH is the real thing and why are we bothering to put up with the AOL of cryptocurrencies when this other thing, BCH, works so much damn better? And value will begin leaking out of BTC and into BCH, especially as use cases for BCH begin to multiply and an ecosystem of use-cases are built on top of BCH as a platform. That will begin to multiply the network-effect. And BCH devs are wisely keeping the use-cases as wide open as possible, that allows path-dependence effects to stay wide-open as well, allowing that ecosystem to grow. An ecosystem that the BTC-Core devs have already destroyed, strangling the baby in its crib, btw. So, in the same way that we had to educate the masses about cryptocurrency in general, it is now our task to explain to them why Bitcoincash is where focus needs to be going forward. Honestly, the hard work of validating the cryptocurrency concept is already done, now the job is to compete within the class, and we have every advantage.
why dogecoin will be the internet currency? Gresham law
Unlike what it may seem, the lowest value coin is the one that best spreads and survives. People tend to keep what they consider a safe and profitable value like gold or silver (Bitcoin and Litecoin), and the one that thinks that it has little value gets rid of it. But this does not kill the currency because the currency is not destroyed but just changes user, and has the opposite effect, "bad" currency ends up expelling the "good" coins from the market. https://en.wikipedia.org/wiki/Gresham%27s_law
Author’s note: I typically don’t seem to approach problems the way most of us are expected to. In some ways I think this could be useful for various reasons, but unfortunately there are “side effects” as well. Once such side effect is my inability to use language in the standard way. The reader will have to forgive me for this, however, I believe that for this writing, the meaning and purpose will still translate to SOME players. If a few players can understand the content well enough, perhaps those who themselves HAVE a talent in language, might be able to translate the content in their own respective ways. Introduction
…it cannot be irrelevant whether or not the future quality of a currency is really assured or whether instead that it depends on the shifting sands of political decisions or the possibly arbitrary actions of a bureaucracy of official.~John Nash-Ideal Money
Ever since Satoshi put the 1mb cap on the block-size, the community has been dividing itself further and further, between those that want a dramatic increase in the limit and those that do not. This creates an uncertainly in the future quality of the currency, and I think both sides would admit that this necessarily affects adoption and the price of the bitcoin. The most popular sentiment SEEMS to be that “big-blockers” want to scale bitcoin to have a transaction capacity that would allow it to evolve to be a global currency. However, big-blockers also have the biggest hill to climb, because they must convince Core to bend to their mandate (and then convince the network to adopt such a proposal). Core seems to have no intention in even addressing this issue. Bitcoin is in a state of flux. The purpose of this writing is to put and end this flux. Re-solution and Rheomodes
If we can see what all of our opinions mean, then we are sharing a common content, even if don’t agree entirely.~David Bohm-On Dialogue
In order to do this I must be allowed to extend our language slightly. Rheomodes are a new mode of words (like verb, noun, pronoun, adjective etc.) created by Dr. David Bohm as an experiment to see if we can derive any value from taking emphasis off the noun and putting it onto the verb (in this instance rheo refers “to flow” or movement like an action word). In regard to bitcoin we might think of the distinction as the difference between “I’ll send you some BITCOIN” or “BITCOIN it to me”. The former treats bitcoin like a noun, and the latter like an action (a payment method). It might not be immediately obvious what the importance of introducing a rheomodes. And it is indeed a difficult subject to introduce. A rheomode refers to a type of perspective that could either be called “objective” or an “aggregate of all subject perspectives”. An easier way to say this is that a rheomode means ‘to call the groups attention to X’, where X depends on the definition of the rheomode. For the purpose of this essay the rheomode I wish to levate (call attention to) is “re-solution”. ‘Re’ (followed by a hyphen) in this instance, along with denoting the rheomode also implies “again”. ‘Solution’ in this instance, will not refer to the solution to a problem per se, but rather the mixture of two otherwise divided parts into a whole. The “again” or “re” implies that these separate parts were already a whole, and they were somewhat unnecessarily or unjustly divided (this creates an implication that there is a need or want for the parts to return to the whole, hence the connection to the root word ‘resolution’). This is the basic aspect of the concept of rheomode I wish to bring to our attention, and the rheomode itself, re-solution, means, essentially, “to bring to the community’s attention the spontaneous combining of two otherwise separate parts, in such a way that a new wholistic perspective arises for the group”. Now I will give an example of how we might use this rheomode in practice so that we might better understand its purpose and function. The Re-solution of Gresham’s Law and Tier’s Law After previously trying to re-solve the block-size debate with Gresham’s law, and the explanation that people will not circulate bitcoin, but rather they will hoard it versus a fiat counterpart, it has been brought to my attention that Gresham’s law isn’t necessarily applicable to bitcoin since there is no legal-tender law in relation to it. Furthermore, astute players (and usually proponents of big-blocks) point out that the bitcoin phenomenon should work in REVERSE to Gresham’s law-people will circulate bitcoin and drop fiat altogether. This is called Tier’s law and it is said to come into play in the absence of any legal tender laws. And here is where our example for our rheomode comes in (wiki):
The Nobel prize-winner Robert Mundell believes that Gresham’s Law could be more accurately rendered, taking care of the reverse, if it were expressed as, “Bad money drives out good if they exchange for the same price.”
Now we can use our rheomode in a sentence: Robert Mundell “re-solved” Gerham’s law with Thier’s law which such a statement. That is to say, by taking a higher level perspective, Mundell was able to present a more general perspective that encapsulated both of the laws, and because of the succinct and direct use of language he was able to call this generalized perspective to the attention of the academic community and citizenry of this world. (note: In the language I have been working on, I would call this observation transmutation, which basically refers to “that which changes, and that which doesn’t change. Here the common meaning of transmutation seems appropriate as well.) In going with Mundell’s insight we can begin to re-solve the future of bitcoin, without breaking Gresham’s or Tier’s law as follows. If bitcoin, left as is, became the new gold standard, people began to hoard it, and the velocity of fiat started to increase, we might view this phenomenon as a similar RESULT to Gresham’s law (even though the initial circumstances are not necessarily the same). If we raised bitcoin’s transaction capacity to facilitate a low fee coffee money, and bitcoin grew to be a world currency fast enough that fiat was effectively dropped altogether, we might view this phenomenon, instead, to be comparable to Tier’s law. Ideal Money: A COMMON Goal Each side of the debate seems to share a common interest in that they want to use bitcoin in the most optimal fashion possible. And each side shares a common interest in wanting to bring our global financial system into order. I want to paint two distinct pictures, big-blockers that wish to optimize bitcoin as a currency, and small-blockers, that might be thinking of bitcoin as a new age digital gold, which inspires optimized currency systems to run in and around bitcoin and the block-chain. Each of us has our own view on what ideal money might be, however we need to take note that a very brilliant man has spent many years meditating and speaking on the subject of Ideal Money. His definition for what would ultimately be Ideal Money comes down to basically, ‘money that doesn’t degrade in value/purchasing power over time’. Now this is a slippery definition, it is not in itself a solution (this is why it is called IDEAL). But it does provide us a basis or a ceiling that we might strive for. I have always understood this to support the small-blocker agenda, in that as bitcoin becomes a safe haven for inflation, government will be forced to print money of a better and better quality. The eventually “asymptotic” result being the ceiling or “Ideal”. I think though we can begin to re-solve both sides of the debate by using another perspective or definition in regard to a common goal or an Ideal Money. Here is another quote from Dr. Nash:
…to improve the conditions under which agreements regarding long-term lending and borrowing would be made, a money would be more or less equivalently good if it had a completely steady and constant rate of inflation. Then this inflation rate could be added to all lending an borrowing contracts.~Ideal Money
Now I think then I can see the possibility (like Thier’s law states) that the people could adopt bitcoin perhaps in a relatively short period of time, and drop fiat currency so fast that governments have no realistic time to adjust. Then bitcoin could become a global currency with a very moderate inflation rate for some period of time. This too I think could bring our global financial system into order, as bitcoin could either be continually optimize, or perhaps new currencies in the future could arise to take its place (but not fiat). This path though, does require a higher transaction capacity (ie bigger-blocks). The Re-solution of the Block Size Debate Now I believe we have brought about a great insight. I think it can now basically be shown that Ideal Money could be brought about using EITHER path for bitcoin. And this possibility changes the nature of the problem. If we can be allowed to suggest that both sides do in fact have legitimate claims to bringing about order to our financial system, then it is no wonder that sincere players are so passionate and adamant that their agenda pull through! In fact such a realization can be used to create 4 useful player archetypes I wish use to remember to use: the rational small-blocker, the irrational small-blocker; the rational big-blocker, and the irrational big-blocker. Notice that even if someone calls another player an “irrational X-blocker” there is still an implication from that person that the X side does in fact have rational players. This alone, it seems, could change the nature of the debate. I think some people will read this writing and be unsatisfied with the claim that I may have re-solved the block-size debate. I wish us to keep in mind the purpose and definition of our rheomode (re-solution), and especially that it means “to bring to the community’s attention the spontaneous combining of two otherwise separate parts, in such a way that a new wholistic perspective arises for the group”. This is what I have done, but what I have not done is the traditional use of the word “resolution”, I have not chosen or proved one side of the debate is correct. Instead, by showing both sides can lead to our shared goal, I believe I have served the stated purpose of this paper, which is to help bring bitcoin out of flux. Rational players on both sides now have a common goal and reason to come together. And it can be side that if each player cannot admit that there are rational players on both sides of the debate, then that player must be seen as insincere. Now much of the focus can be on finding the optimal PATH to take bitcoin on, rather than focusing on winning the debate, in the name of what each player KNOWS is “correct”. That is to say this paper, if successful, should alleviate pressure on Core, which in turn should bode well for the present day and long term health and circumstances of our beloved currency. In closing, I would like to say, I have now changed my stance on the block-size debate as a previously devote small-blocker. I am no long afraid of big blocks. I am no longer afraid of X-size blocks, and I hope now the reader no longer is either.
i couldn't care less about 0-conf, I don't care about fees, I'm fine with paying $100 per transaction, I couldn't care less about Bitcoin payments making people feel good. Bitcoin is not a toy, it's a baby dragon growing and learning how to fly and cast fireballs with the ruthless and consuming ambition to rule the world has a reserve currency. All I want is the system to be decentralized as advertized, immuned to politics, like gold. No I don't want Bitcoin to hardfork every year, no Bitcoin is not threatened by shitcoins, and no Bitcoin doesn't need to adapt to survive. Bitcoin only needs time. The Lindy effect and Thier's law will take care of everything else. Bitcoin does also needs a highly professional and dedicated technical community, to find new vulnerabilities, correct them, and add improvements in a safe and uncontroversial way that will bring value to everyone. Better fungibility and better privacy is likely what can bring to most value to Bitcoin and what is critically missing. The meritocracy Bitcoin Core has an impressive track record and appears to be well aligned with Bitcoin investors. I don't see anything competing with it any time soon. So, whatever you do please don't blow it up. Please don't tell me that tomorrow I will have to register to some centralized authority to move my investments. I, the INVESTOR, only care about value and securing my value. Bitcoin should compete with gold and aim at have Central Bank users that invest in it as a reserve currency. Buying coffee with bitcoin or playing SatoshiDICE is for retarded teenagers. Let's leave these spammy usecases to other shitcoins. Bitcoin is serious business. INVESTOR is king. Everyone else is after his money and attention, whether they know it or not. This post is an answer to Rariro 's post
Who doesn't use bitcoin when given the choice between bitcoin and other payment methods, and why?
We all know about Gresham's law, but at this early stage of the currency's life, we need to give it all the support we can by actually using bitcoin, then buying more to replace it. I am interested in getting the opinions of those who choose to not use bitcoin when given the choice, and why. I am trying to gather some of the flaws in the current ecosystem rather than flame individuals who choose to not use bitcoin.
Under the auspices of Investors' relentless reach for yield in ZIRP/NIRP environment: it seems the savvy among them have struck upon a way to get decent income on savings. (Zero/Negative Interest Rate Policy) Loan it out to the Bitcoin Bulls on BFX. Given that there are way more dollars than BTC, and a whole range of people who prefer income, albeit a derivative play on a dubious digital unit, as opposed to speculating on the underlying issue; AND given the lack of change in short interest; we can only deduce sellers are actually selling their holdings in a stealth accume regime from weak to strong Bitcoin Bulls on BFX. The trend we all are witnessing, achieves its logical conclusion upon the expiration of either BTC sellers or yield searchers. I think the outcome is evident under Gresham's Law. http://en.wikipedia.org/wiki/Greshams_law TL;DR When fiat is the overvalued and BTC the undervalued, BTC gets hoarded by rational people. Hence, Sellers will loose. After all sellers cannot compete with Citibank. The Citibank who just loaned me 10k on super easy terms. The same bank like so many other banks making loans like these to thousands upon thousands of people everyday. I just happen to put my 10k in the swaps for hire. What I make in two weeks covers my carry all year. I am not alone. Or maybe I just took the 10k and went full retard BTC. Bought 10 and then pledged it to purchase 25 more. That bull is not alone. And then there are miners and early adopters selling the real coin daily. Whats that? 3600 coins, $2.32M. Pfft. In the last 30days the USD swaps went to $30M from $24, an increase of $6M or $200k/day on average. The trend appears to take a parabolic shape with yesterday's increase $764k, and yet the Avg CFD rate is in decline on the same timeframe. Indicative of the hotness of Citibank money flowing in. In the next month, I project we go to $42M USD swaps, an increase of $12M. Daily spikes in the $1.5M range. That's enough to satisfy over half the daily mining supply at today's market price. Markets move on the margin, and while a $1.5M daily increase in swaps is not enough to absorb daily mining supply, I do think its enough to convince the strongest weak hands to maybe hodl a few days longer instead of sell. And that sort of thing leads to a virtuous cycle of psychological support. And that translates into support for higher prices. And in Bitcoin land that can only mean one thing. Im not saying bubble. Tl;DR. The hot money replacing hot China money belongs to raphael_bitfinex :-) e: username. Spelling. Grammar
Gresham's law as it applies to bitcoin vis-a-vis sovereign fiat money
I've been reading about Gresham's law an economic principle commonly stated as "Bad money drives out good". I'm trying to understand how that would apply towards the relationship between bitcoin and national/sovereign currencies. When does this law cause bitcoin to be "driven out" and hoarded? And when does the opposite occur, if at all, does Gresham's law encompass a scenario which allows bitcoin to prevail in a geography? I'm most interested in understanding how Gresham's law applies in four different scenarios (bitcoin vs X): A) A functioning stable national currency (a well managed, not infated, not deflated currency) B) A national currency that is in the throes of hyperinflation, or has become completely worthless. For example, Zimbabwe. C) A national currency that is in the throes of extreme or chronic deflation. eg. Japanese Yen D) A value collapse of a "basket" currency or regional currency due to politics. eg. Euro value collapse, USD value collapse. If anyone has any good insights into the applicability of Gresham's law to crypto-currencies, any special consideration (ie, does instant transfer or infinite divisibility change things?) or other ideas, please share!
Cost, Value, Price, Money, and Emergy -- Developing ideas, request for references (and sanity check)
Over the past several months I've been developing some thoughts on fundamental underpinnings of economics, particularly the concepts of cost, value, price, money, and working in an ecological principle, emergy (with an 'M'). I've found some references, I'm seeking more for both conventional and unconventional thinking. The most recent draft is at Ello, "What's the value of the Universe in dollars? All of them". I'm not entirely satisfied, though it's shaping up fairly well.
My terms aren't quite as typically used in economic discussion, though close, and I believe defensible.
Goods: Variously and shorthand for, resources, products, services, labour, capital. Anything exchanged economically.
Cost: The requirements for producing or providing a good. All costs are opportunity costs.
Value: Here I mean use value, which is close to, perhaps the same as, utility. My aim however is to have a quantifiable and not merely rankable concept. Austrians may find this unfamiliar.
Price: Market value or exchange value. What two parties in a transaction agree to give up, or make available, to exchange a good.
I've been developing these ideas largely at The Other Place, within my Economics Collection. In particular, in date order:
A development of Emergy to Currency (26 Jan 2016). Elliott T. Campbell, David R. Tilley, "The eco-price: How environmental emergy equates to currency", Ecosystem Services. March 2014, Vol.7:128–140, doi:10.1016/j.ecoser.2013.12.002. "Energy flows through economies in a hierarchical pattern with vast amounts supporting the base while each step has less and less flowing through it. Money is inextricably connected to many of these energy flows in a countercurrent."
Value: a red herring (24 Feb 2016). The idea that in most market circumstances, setting a specific value on a good is a distraction. I'm now thinking I've taken this a bit too far, but it remains useful. Specifically, in many arguments the case is made that 1) value matters, 2) it cannot be precisely known (because it's an internal mental/psychic state), and therefore attempts to prescribe or control or quantify it are bound to failure. My upshot: so long as value exceeds costs the market's going to function. And, on the large/aggregate scale, ecological/biological type methods to assess value work sufficiently for analytic purposes.
As noted, this is a frequent topic of discussion. Among those discussing price, cost, and value that I'm aware:
Usual caveats -- this is Wikipedia, a guide but not a source. Reassuringly, economic value seems to match my use:
[E]conomic value is not the same as market price, nor is economic value the same thing as market value.
And yes, this seems like a continuing puzzle in economics:
The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods which can be exchanged. From this analysis came the concepts value in use and value in exchange.
In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market... As such, everything is seen as a commodity and if there is no market to set a price then there is no economic value.
A/K/A "value in exchange".
In classical economics, the value of an object or condition is the amount of discomfort/labor saved through the consumption or use of an object or condition (Labor Theory of Value).
Steve Keen makes the claim that "value" refers to "the innate worth of a commodity, which determines the normal ('equilibrium') ratio at which two commodities exchange."
Citing: Steve Keen Debunking Economics, New York, Zed Books (2001) p. 271, ISBN 1-86403-070-4, OCLC 45804669 In which case, Steve and I disagree. See W.F. Lloyd and M. Say. Though:
To Keen and the tradition of David Ricardo, this corresponds to the classical concept of long-run cost-determined prices, what Adam Smith called "natural prices" and Karl Marx called "prices of production."
That I agree with more, though I'd clarify by calling it the innate cost. Any value must then exceed this cost. There's John Ruskin who wrote on the moral concept of value in Unto This Last. Notably:
It is impossible to conclude, of any given mass of acquired wealth, merely by the fact of its existence, whether it signifies good or evil to the nation in the midst of which it exists. Its real value depends on the moral sign attached to it, just as strictly as that of a mathematical quantity depends on the algebraic sign attached to it. Any given accumulation of commercial wealth may be indicative, on the one hand, of faithful industries, progressive energies, and productive ingenuities: or, on the other, it may be indicative of mortal luxury, merciless tyranny, ruinous chicanery.
Ruskin influenced Gandhi. Mises appears:
Economists such as Ludwig von Mises asserted that "value," meaning exchange value, was always the result of subjective value judgements.... Thus, it was false to say that the economic value of a good was equal to what it cost to produce or to its current replacement cost.
Among the classic works on the topic. Jevons' contents cover many of the topics and concepts I've been blundering into, though he's also concerned with the physical instanciation -- at the time of his writing, banknotes were still fairly new, and the were serious questions over multi-metallic standards (e.g., gold or silver, or gold and silver). Briefly:
"Want of coincidence in barter", measure of value, subdivision
Utility and value are not intrinsic
Value expresses a ratio of exchange (my: "price is a rate")
Functions of money: standard of value, store of value. (But not "medium of exchange")
Speculation of early history
Qualities of the material of money: utility/value, portability, indestructibility, homogeneity, divisibility, stability, cognizability
Credit documents and systems, banking system, and clearing-houses
The quantity of money needed by a nation
Does a revised model offer any explanatory power?
There are several questions, most pressing of which is "am I completely nuts". Running close behind is "what does this buy us"? I'd really like to be able to explain contradictions, paradoxes, or failures of existing economic theory in establishing value. There's the case of under-priced resources and the shutdown decision, noted above. The dual approach to pollution externalities is another. Not sure if this is Coase, Lucas, Rawls, or another, but essentially, if one party pollutes and another has to deal with the consequences, conventional economic theory can make an equal case that either the polluter pays a fine for the harm, or the nonpolluter pays the polluter not to pollute. Being able to explain this would be nice. If price is simply a control-system cost, then summing up control system costs over the entire economy ... doesn't really seem like a sensible operation. It tells you how much encouragement is needed to precipitate trade, but needn't address either cost nor value. This suggests that computing economic prices isn't ... all it's cracked up to be. And that perhaps cost is a better basis. It could well be that ecologists are chasing the wrong target. They should be mapping economic costs to ecological ones, not the other way around? Skimming Jevons, he addresses the cognizability of currency -- that is, you want people to be able to instantly recognise money as money. And not have to test it for worth or value. That's tickling some nerves, with Gresham's Law and Bitcoin both coming to mind. Gresham's Law: readily recognised value is a positive. Bitcoin; inherently noncognizable. Observed economic behavior should be describable or derivable from this explanation. Coming up with a normative this is how things should be story ... that doesn't describe reality, isn't particularly useful. It is, however, practical. I'm aware that some of what I'm suggesting goes against a few thousand years of economic thinking. On the other hand, some of what I've blundered into appears to be well in line with what's come before, and I'm independently deriving it. Some simple targets would be to describe products made or labour provided continuously. Being able to describe pricing behavior and pricing mechanisms, and to show how stocks (that is, fixed quantities of goods) or asset classes behave, would be useful. Describing monetary behavior more generally even more interesting. And that all remains a work in process. As I noted at the top: this is something I've been developing for the past couple of months. I'm researching what I can find of existing theory and understanding. Additional references, and noting where I'm off in the weeds would be highly appreciated.
Markets and Price-Setting: Thoughts on information, created goods and services, fixed-supply commodities, financial instruments, and other market values behave
I've been reflecting on Paul Mason's Postcapitalism, particularly as concerns what he identifies as a hum-dinger of information goods: Information goods destroy the price formation mechanism based on scarcity. That's one of a few cases in which markets as price-setting mechanisms fail, or are subject to very high degrees of ambiguity. Four particular instances come to mind:
Information goods, as identified by Mason.
Existing products -- effectively the resale market.
Financial assets: goods whose price is predicated on scarcity and some ascribed basis for value.
Extractive goods: resources which are used faster than their replacement rates.
Each poses specific failures to usefully set a market price that corresponds to the true costs of production. What I'm posing here is more an exploration of aspects I've found, and still find, contradictory. I'm not claiming to have final answers, though I'm starting to land a few good leads.
On "natural prices"
While much lay discussion of economics holds that the market price is the fair price for a good or service, the question of what a "natural" or "fair" price has occupied a great deal of economic thought and discussion since the time of the Greeks. Adam Smith in Wealth of Nations proposed a definition which remains close to what's commonly accepted today -- a total cost of inputs, plus normal profits:
When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price.
The cases I'm considering here all violate this in one way or another. This is troubling as they're increasingly key to economic activity.
Information wants to be free.
-- John Perry Barlow In an efficient market, quality information is consistently undervalued. In this case: fixed costs of production are high, but marginal costs of production are low. It takes a lot of time and research to create a quality book, a piece of music, software, news reporting, pharmaceutical, chemical process, etc., but once developed the costs of manufacture are far, far less, effectively zero in many cases. That's one fundamental contradiction of the "knowledge economy". There's the further problem of Gresham's law as applied to information: cheap, low-quality information tends to drive out high-value, but expensive-to-produce information. Ask anyone in the news, broadcast, or publishing industries.
There are good cars and bad cars (which in America are known as "lemons").
-- George Akerloff, "The Market for Lemons" This is the second-hand market -- goods which are re-sold by an initial buyer, after initial purchase. Flea markets, swaps, Craigslist, consignment stores. And antique shops and auctions. The fundamental characteristic of each of these is that the good already exists. There is no production function. Price, instead, is effectively a motivator -- what does it take to convince the holder of a good to part with it? There's a Spanish folk saying I've only recently learned, its English translation "Buy from desperate people, and sell to newlyweds." In both cases, the supply and demand curves are shifted to the advantage of the middleman buying in the first instance and selling in the second. In some cases, there's an alternative to buying used: you can buy a new item or make one yourself. For many utilitarian goods (clothing, furniture, children's toys, used books or records), the second-hand market offers considerable savings over new or self-made. Keepsakes and mementos have highly asymmetric valuations: the holder usually ascribes a high sentimental value, while others may view the item as little more than clutter or "old junk". In this case it's typically unlikely for the piece to be sold -- the holder's valuation is higher than any potential buyer's, unless the former is desperate. Antiquities or fine arts, as opposed to personal mementos and keepsakes with high sentimental value pose a different situation: if it is the specific item in question and not a functionally equivalent replacement that is sought, then there is no ascribable production cost. You cannot make a "new" original Rembrandt, or Picasso, or Ming Dynasty vase, or piece of ancient Egyptian art. Price of such goods is entirely dependent on the demand for such products. It calls into question the entire concept of what a "natural price" of such a good is. This case is actually the genesis for this essay -- the example I had in mind was of a Stradivarius violin -- there are about 650 left in the world, largely manufactured between 1680 and 1700, and present market values range from hundreds of thousands to millions of dollars. This despite notable failures for blind listening tests to distinguish or prefer Strads over other instruments. While modern mass-produced violins can be had for as little as £80 new, more expensive hand-crafted instruments comparable in tonal quality to a Strad fetch about £15,000. That's still a considerable discount on the Strad -- by a factor of 200. The embodied labor?
It takes around 120 hours to make a violin, 150 hours for a viola and 300 hours for a cello.
That's an all-in £125/hr cost of labor, assuming labor is the principle input. Similarly, nearly indistinguishable art forgeries are fairly common, there's the case of "Jefferson's Bottles", literally an instance of new wine in old bottles. Or forgeries of antiques, antiquities, and the like. In all cases, the immediate quality of the forgeries is quite difficult to tell, though dating of materials by radioisotopic means usually manages to distinguish them. What's changed is the perception. What marketers call "selling the story". Or, quite bluntly: changing the demand curve for a product. Extant products fall into two general categories:
Those for which there is an imbued additional value -- above and beyond the intrinsic use-value of the product. These are products which tend to be either asset classes (if the ascribed value is widely shared) or keepsakes (where the ascribed value is personal -- "sentimental"). Goods with high sentimental value rarely sell -- the owner ascribes more worth than the market. Works serving as an asset class (specie or fiat currencies, precious metals, stocks, bonds, other financial instruments) have effectively no sentimental value.
Those for which the intrinsic value is the primary consideration. This is the class for which the economizing purchaser can save a great deal over buying new.
And finally, extant goods have the "lemon" problem, and in fact, in the form of the used-car market, are the basis for George Akerloff's "The Market for Lemons" paper noted in the epigraph for this section. In the case of established goods (e.g., antiquities and fine arts), the asymmetry detailed by Akerloff tends to be minimized. In the case of certain complex goods: automobiles and electronics certainly come to mind, concerns on the part of the buyer over the serviceability of the good in question tends to 1) keep prices depressed and 2) limit the number of quality items actually offered to market -- the seller knows that it will be unlikely to recapture the true value of a quality item.
Because that's where the money is.
-- Willie Sutton, on why he robbed banks. Here, you've almost the inverse situation of information goods: marginal cost of production is exceptionally high - - there's either a workfactor cost, or simply a finite supply (for numerous reasons, to be explored more). Will Rogers on land: they're not making it anymore. The asset value of precious metals is that their supply is (theoretically) constrained by the high costs of mining. Bitcoin is similar. But the intrinsic utility of the good is close to nil. A dollar bill has little intrinsic value, or, if you prefer, a $100 dollar bill. It's a piece of paper, ink, and anti-copyright features. The production cost is a factor of regulatory limits on production. Gold and silver have some utility, but this is generally less than is reflected in its exchange value. Diamonds are a case of induced scarcity, though with a few other twists which tends to inflate the retail value while affording virtually no resale value. The added value by virtue of being money is referred to as seigniorage:
the difference between the value of money and the cost to produce and distribute it.
What's key is the "story": not all rare things are valuable, but all valuable things are rare. The key to creating a market for a given asset class is to convince people that other people are convinced of the value. It's a bit of a circular definition. Some assets have value ascribed to them. I've previously discussed what gives money value, in particular the United States Dollar. There are five key aspects:
It is legal tender: debts incurred must be considered legally discharged when paid in dollars, at least within the United States.
It is the required form of payment of taxes. That is, some 40% of total US economic financial turnover is in the form of tax obligations.
It is the global reserve currency. International debt settlements are generally paid in U.S. dollars.
It is the global payment standard for petroleum. That's about $3.1 trillion in global payments again, creating a use for dollars by every oil-importing nation.
It is the basis of paying off debts denominated in dollars, including consumer, mortgage, educational, and other loans.
Buy land. They ain't making any more of the stuff.
-- Will Rogers Other asset classes are real, in the sense that they're tangible, with real estate being a classic example. In Smith's time, the value of land was largely based on the produce one could derive from it: crops, lumber, cattle, fish. Perhaps wind or water power. In urban economics one learns that the value of housing (whether rented or sold) is based on the earning potential and travel time associated with it -- generally housing costs fall as one moves further from an urban center. But a secondary factor of housing is as an investment, though as many critics has pointed out, the long-term performance isn't particularly good, the carrying costs are high, the asset can be highly illiquid (especially when it's carrying a mortgage valued more highly than the property itself). In some areas title may be difficult to establish -- Hernando de Soto and Niall Ferguson discuss this in their respective books The Mystery of Capital and The Ascent of Money in the context of South America, and the resulting difficulties and alternative conventions. One interesting conclusion is that surplus profits of labor (or of business) tend to be subsumed by increasing housing (or office / store-space) costs.
These are also consistently undervalued. Any resource that's being extracted or consumed at rates greater than its replenishment is effectively an extractive good. The typical examples are minerals and mining, and fossil fuels, but this can include other and nominally renewable resources: topsoil, freshwater, groundwater, rhinoceros horn, timber, topsoil, fisheries.... The market price is set by the access price: how much effort it takes to extract the resource, but not a depletion allowance for the fact that the removed unit(s) will not be restored. The latter is a suggestion of many authors, including Herman Daly. It's interesting to note cases of societies which were formerly based on extractive technologies which have run through the entire resource and have lost their former wealth. A classic instance is the island nation of Nauru, briefly the wealthiest nation on a per-capita income basis during the 1980s due to deposits of phosphate rock -- bird guano -- valuable as fertilizer. Its 9,000 inhabitants on 21 km2 now rely on revenues for running a detention center for the Australian government. It's also served as a tax haven and offered passports to foreign nationals. The export land model of Jeffrey Brown describes the dynamics of oil exporting nations as domestic consumption rises to exceed total extraction capacity. Some analysis of the Arab Spring revolves around falling oil extraction in Egypt, Syria, and Libya as contributory causes, though a prolonged drought in Syria has also been mentioned. Cataloging a list of other nations formerly based on exported natural resource wealth could prove illuminating.
Overconsumption of Luxury Goods
As a counterpoint, there are products obtained unsustainably for which the market price is high (though possibly still undervalued). Rhinoceros horn would be an example, whale meat, and tropical hardwoods others. Often within what's a globally small market -- rhino horn is largely valued in south-east Asia and China, whale meat in Japan -- there's a significant social signaling status (Veblen good) for the product. Paradoxically, price is itself a signifier of signaling value, and total quantity demanded, while in excess of replenishment factor, is such that increasing the cost of the good doesn't reduce overall demand (or at least not sufficiently to avoid exhaustion or extinction of the source). Arguably the price is still too low (there should be an extinction/exhaustion premium), but even with increasing prices due to scarcity, the market response is not rational. Moreover, the value ascribed these goods isn't intrinsic to their practical application but to social signalling status. That is: a cheaper replacement would be inferior simply on the basis that it's cheaper, and hence, a weaker signal.
Information vs. Assets
The most striking aspect of Mason's Postcapitalism lecture is his juxtaposition of information goods, in which scarcity drives prices to zero, and of financial assets, in which an ascribed value increases the worth of an asset above its intrinsic value. But more critically:
The key contradiction in modern capitalism is in this emerging contradiction between free socially produced abundant [information] goods, and a system of monopolies, banks, and governments who are forced, in order to survive, to behave desperately to maintain this information asymmetry.
That is: Facebook or other service providers retaining proprietary control, and often, secrecy, over their APIs. There's an intrinsic fight between the network, information goods, and the hierarchy, proprietary and material goods. I further see the need for the financial system to see ever further growth, and interest payments, which a largely information-based economy is unlikely to provide.
In summary ...
I don't want to title this section "conclusions" because, generally, I'm far from them. I do hope this proves useful (and not too personally embarrassing to me) for further discussion / exploration on where and how value is ascribed and attributed.
Concerns about paying for services and goods with bitcoins
I am still very small time into the bitcoin economy, but I had some thoughts about my part in helping out the bitcoin economy. My concern has to do with the continued existence of inflationary currency, and how that currency, by design, will work to prevent people from spending their deflationary currency. I still get paid in dollars, and I'm making a concerted effort to switch those dollars to other forms each month, including bitcoins and gold. Hypothetically, at any given point, the vast majority of my liquid net worth will be in dollars, with a small part being in bitcoins. At some point, if I choose to buy something, and I have a choice to use dollars or bitcoins, I'm going to want to use dollars, because I know that those dollars are losing value the longer I hold them. That's the entire point of inflationary currency... to keep you from wanting to hold onto them. The opposite is the case with my bitcoins... I'll want to hold on to them because their value should grow as the economy increases. Everything I just stated is pretty much the point of Greshem's Law, that states that bad money drives out good. Encouraging consumers to spend bitcoins is not going to speed up adoption, but instead, we'll need parties to refuse to accept dollars, and that's never going to happen. I'd love to hear other perspectives on this, though.
Ultimately, it spells the rise of the satoshi and the demise of bitcoin. This is because Gresham's Law applies: people will spend satoshis and keep bitcoins. As economic activity increases, demand for the satoshi will rise, putting the fixed exchange rate under pressure. The satoshi will inevitably be devalued, probably several times ... Thiers' Law - the Reverse of Gresham's Law Rolnick and Weber (1986) argued that bad money would drive good money to a premium rather than driving it out of circulation. Hyper-dollarization in eastern europe after the collapse of the Soviet bloc is one example. Hyperbitcoinization today is another. Gresham’s law says that bad money drives out the good money. To wit, if a government institutes paper money, it will quickly replace silver money as people hoard their silver and try to get rid of their paper. Since paying for books are a generally accepted way of compensating the researcher/writer and paying for web-content is not, I have ... There's also something called Thiers' law.While it had some application during the Weimar Republic in Germany, unfortunately the wiki article doesn't talk about why Thiers proposed the law. The gist of it is that "bad money drives out good if it's legal and there is no easy alternative", thus adapting Gresham's to put this clear stipulation on it. Gresham’s law points to a flaw in the bitcoiner’s theory that bitcoin will usurp the traditional banking system and cause “fiat” to hyperinflate. If it doesn’t circulate it cannot be ...
Bitcoin Playground Upgrading Trezor Firmware to Bitcoin Only
If you want to HODL your Bitcoin because :Gresham's law, and still want to support my efforts, Thank you! Please reach out to discuss. If you have any questions, please feel free to get in touch. If you want to HODL your Bitcoin because :Gresham's law, and still want to support my efforts, Thank you! Please reach out to discuss. If you have any questions, please feel free to get in touch. Gresham's law is an economic principle that states: "When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear... https://www.thebitforum.com We look at gold and silver, more incoming predictions as to WHICH METAL will perform in 2018. A review of Gresham's Law and perhaps how it could relate to competing ... If you want to HODL your Bitcoin because :Gresham's law, and still want to support my efforts, Thank you! Please reach out to discuss. If you have any questions, please feel free to get in touch.