If bad money drives out good, then crypto should prevail over Fiat currencies

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While it is hard enough to claim that a “law” in physics is really a law, it is much more difficult to do so in economics where cause and effect are as immutable as the vagaries of human behavior. Yet there are supposedly laws, and the one that has stood the test of time from ancient times until today is Gresham’s Law which states that “bad money drives out good.” “

Bad money is money that is not intrinsically worth what it claims to represent, eg paper money is never intrinsically worth its “visual” value. Good money is worth what it says “on the tin”. In the past, a 1c coin was worth 1c in copper and anyone who has seen a “big” 18th and 19th century penny will understand how that can hold its true metal value. You can also see inflation in old coins as the unit changes from good money to token money. First the coins shrink in size, then break away entirely from their intrinsic value and end up like American coins, coated with shiny iron, like washed denarii of Roman silver.

Degradation of a good coin by a bad coin version occurred via coins with a high percentage of precious metal, reissued at lower percentages of gold or silver diluted with a valuable metal lower. This forgery chased the right coin for the wrong coin and then prices were adjusted upward to compensate. No one spent the right coin, they hid it, so the correct coin was kicked out of circulation and into a treasury.

Meanwhile, the Issuer, normally a king who had blown up his treasure in endless war and other dissolute lifestyles, was behind the movement. They stole all the good old coins they could, melted them down and reissued them to lower purity and pocketed the balance. It was often illegal to keep the old stuff back, but people did, while inflation taxed the people and the king replenished his treasury, at least for a while.

Bad money drives good money out of circulation because the good is hidden and the bad flows.

So today we have a situation where symbolic money, nowadays called fiat, is degraded due to the economic shocks of the response to the pandemic. To fill the savings on the chaos of a shutdown global economy, large amounts of new money have been printed to bail out and force creditworthy companies to suspend economic activities. The lost wealth of productivity could have caused a cataclysmic economic collapse by contagion, but that catastrophe was averted thanks to billions in bailouts that kept the system liquid and running and prevented a vicious chain reaction of default and lockdown. .

However, there is less and more money left in the system, the central condition of Milton Friedman’s inflation hypothesis that “Inflation is always and everywhere a monetary phenomenon in the sense that it is not. and can only be produced by increasing the quantity of money more rapidly than by production.

Now the debate is over, inflation is here and there to stay.

Then there is bitcoin. It’s good money. It has limited supply and is growing slower than inflation and is expected to slow by half every four years. Apparently Ethereum is now also a deflationary currency, with more mining fees burned than reward. Crypto is also frequently lost, like old gold, forever, further diminishing its supply. While its intrinsic value is questionable, its resistance to inflation is praised.

How does Gresham’s Law affect the future of crypto? By simple substitution of types of money: Fiat is hunting crypto. Are you okay?

Modern government cannot embrace cryptography because the engine of democracy and its politics is its ability to print token money when it needs it and how it sees fit. The government simply cannot operate with a healthy old-fashioned “benchmark” currency because it needs a lot of flexibility to depreciate or increase the money supply for all kinds of good and bad reasons.

Here are some of those reasons:

To prevent economic collapse in the face of a disaster like war or plague To bribe voters To provide unsustainable pensions to civil servants, impractical, or savagely evaded.

Moreover, a healthy currency, say gold or bitcoin, is only a stroke of the pen away from derivatives creating endless amounts of paper or digital proxies. So solid silver can be quickly mined and replaced whether you like it or not.

So, with the government forced to have fiat currency, even if it wanted to claim that its plans for digital currencies have one of the attributes that make healthy cryptocurrency attractive, they will be nothing but fiat under another name and will remain bad money.

Money will always be fiat and sound cryptocurrency will never replace it, as long as our current systems of government are in place. Fiat will keep crypto at bay, an asset rather than an overnight currency.

So here’s a thought. If you can change the rules of a blockchain like a king can remake his coins, is that solid money?

If you can change how a crypto works by being the developer and king of your crypto, isn’t that crypto just a decision? With Ethereum moving from proof of work to proof of stake, isn’t this dramatic transition a shift from good money to fiat?

Blockchain is where IT meets politics. that is why he is so powerful. So the moment you let people drastically change your rules, then you have a decree, and even worse, if these people are operating on a “token, one vote” basis, you have an oligarchy.

Thus, Bitcoin’s nearly impossible to change rule set appears to offer a stronger promise of money than Ethereum’s still pivotal governance.

Meanwhile, fiat is going through a period of aggressive bad money that will drive cryptocurrencies to the sidelines where they will be pooled as safe-haven assets.

So if Gresham’s Law is to be true, for crypto to end current fiat currencies, it must eliminate bad fiat. While this might sound absurd, it could explain the sudden explosion of unwanted coins like the shiba inu, the very abundance of which makes the masses delirious.

Still, the argument may become moot, as before us we see the metaverse opening up, a place where crypto can flow freely and an entire generation is in this fiat world but instead wishes to inhabit and perform transactions in the blockchain world.

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