“When a government overvalues one type of money and under
values another, the undervalued money will leave the country or disappear from
circulation into hoards, while the overvalued money will flood into
circulation.”
This is the quote from Gresham’s Law; otherwise known as “Bad
money drives out good money.” As the Bitcoin have become more and more accepted
as a currency and various places, we naturally ask: “Is it good money or bad
money?” and “How long will it survive?”
Is Bitcoin overvalued? This is a tricky question to answer,
since at first glance Bitcoin does not seem to have any intrinsic value or
ethos from authority. After all Bitcoin is one of digital money; the difference
between 1 Bitcoin and 1 million Bitcoin is just one digit difference in Bitcoin
web’s data.
Then, where does its value come from? Why do people want to
trade about 250 dollar with 1 Bitcoin? There
must be some source giving its value, and it is the stability of the system.
Using cryptography and user-based web, Bitcoin provides secure, fast, anonymous
transactions platform, which is the achievement never seen before in history. Therefore,
even though, it would be unlikely that Bitcoin will take place of major
currency, people will not stop using Bitcoin due to its unique abilities which
cannot be easily found in major currencies.
Reference: Wiki page of Gresham's Law, here.
It's a good question. I don't know that it's well known enough as of now. I had never heard of Bitcoin until I began to follow your blog.
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DeleteI realy like this post. In general, you offer outside sources that help relate the reader back to economic terms which allows the reader to gain greater knowledge of how a monetary system becomes normalized. It is truely amazing that if people can imagine a new form of currency, once it gains momentum and legitimacy, it becomes a reality. Great post.
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