[RunSet]

> Well, bitcoin shows you exactly what to expect in such a situation: it makes a terrible currency that nobody ever wants to spend.

Long before bitcoin, Gresham's Law already said that, given the choice between spending soft money and hard, people will spend the soft and hold the hard.

https://en.wikipedia.org/wiki/Gresham's_law#Theory

If the grocery store and tax man accepted Monopoly's in-game currency, I would likewise expect people to spend that before U.S. currency or bitcoin.

[jameshart]

Gresham’s law doesn’t apply to bitcoin because it isn’t legal tender.

If bitcoin were legally valid for all debts public and private… would people still hodl?

[JumpCrisscross]

> Gresham’s law doesn’t apply to bitcoin because it isn’t legal tender

Gresham’s law applies to anything used as money. Which I would still argue does not apply to Bitcoin, as it’s transitioned into a store of value versus functional currency.

[jameshart]

Gresham’s law is really about currencies where coins have a ‘true value’ and a ‘nominal value’. Like, a silver coin has value as silver, and compared to a nickel coin with the same face value, it’s a ‘better’ coin, so people won’t spend it.

It’s not obvious how to apply Gresham to a conversation about dollars and bitcoins. Legal tender parity would be one way to make the law apply.

[JumpCrisscross]

> Gresham’s law is really about currencies where coins have a ‘true value’ and a ‘nominal value’

Correct. Or, more classically, a nominal value and commodity value. Whether it’s legal tender isn’t functionally germane (though historically, it is).

> not obvious how to apply Gresham to a conversation about dollars and bitcoins

Bitcoins have a sloped demand curve. Liquidating ten billion U.S. dollars gives you ten billion dollars. Liquidating the same in Treasuries gives you almost ten billion dollars. Liquidating the same in Bitcoin yields an unknown amount—the commodity value of a basket of Bitcoin that size. The gap between the quoted “value” and that true value of a given aggregate creates a localised Gresham effect.

[jameshart]

Legal tender law is the legal fiat that gives a coin its ‘nominal’ value distinct from its commodity value.

[JumpCrisscross]

> Legal tender law is the legal fiat that gives a coin its ‘nominal’ value distinct from its commodity value

No. Legal tender makes something required to be accepted at face value for extinguishing debts. Nominal value is a broader concept.

Treasuries, for instance, have a nominal value without being legal tender.