𝗛𝗮𝗽𝗽𝘆 𝗙𝗨𝗗 𝗙𝗿𝗶𝗱𝗮𝘆, 𝗲𝘃𝗲𝗿𝘆𝗼𝗻𝗲!

You know what that means:

𝘐𝘵’𝘴 𝘢𝘭𝘮𝘰𝘴𝘵 𝘵𝘩𝘦 𝘸𝘦𝘦𝘬𝘦𝘯𝘥! 🎉

𝘼𝙣𝙙 𝙚𝙫𝙚𝙣 𝙗𝙚𝙩𝙩𝙚𝙧, it means it’s time for me to bust some more FUD!

This week’s FUD:

“𝘽𝙞𝙩𝙘𝙤𝙞𝙣 𝙘𝙖𝙣 𝙣𝙚𝙫𝙚𝙧 𝙗𝙚 𝙖 𝙢𝙚𝙙𝙞𝙪𝙢 𝙤𝙛 𝙚𝙭𝙘𝙝𝙖𝙣𝙜𝙚 𝙗𝙚𝙘𝙖𝙪𝙨𝙚 𝙤𝙛 𝙂𝙧𝙚𝙨𝙝𝙖𝙢’𝙨 𝙇𝙖𝙬.”

You may not have even 𝘩𝘦𝘢𝘳𝘥 of Gresham’s Law before, but don’t worry, I’ll explain it all, and send this FUD home crying.

Let’s get started⏬

𝗚𝗿𝗲𝘀𝗵𝗮𝗺'𝘀 𝗟𝗮𝘄, which is named after the 16th century financier Sir Thomas Gresham, is an economic principle that states "𝘣𝘢𝘥 𝘮𝘰𝘯𝘦𝘺 𝘥𝘳𝘪𝘷𝘦𝘴 𝘰𝘶𝘵 𝘨𝘰𝘰𝘥 𝘮𝘰𝘯𝘦𝘺." It suggests that when one currency is overvalued or devalued compared to a more stable currency, people will choose to spend the undervalued currency and save the more valuable one.

So Gresham’s Law is less about bad money 𝘥𝘳𝘪𝘷𝘪𝘯𝘨 𝘰𝘶𝘵 good money, and more about 𝘪𝘯𝘥𝘪𝘷𝘪𝘥𝘶𝘢𝘭𝘴 𝘤𝘩𝘰𝘰𝘴𝘪𝘯𝘨 𝘵𝘰 𝘥𝘪𝘴𝘤𝘢𝘳𝘥 𝘵𝘩𝘦 𝘣𝘢𝘥 𝘮𝘰𝘯𝘦𝘺 from their wallets, due to its less desirable qualities, and opting to keep the better money for long-term savings. This increases the exchange velocity of the bad money in the market, creating the 𝘪𝘭𝘭𝘶𝘴𝘪𝘰𝘯 that it’s the money the market is choosing.

If these were all the factors to consider, then it would follow that #Bitcoin would only ever be capable of being a store of value, and never reach the point of being a medium of exchange, and certainly never a unit of account.

𝗕𝘂𝘁 𝘁𝗵𝗮𝘁’𝘀 𝗻𝗼𝘁 𝘁𝗵𝗲 𝘄𝗵𝗼𝗹𝗲 𝘀𝘁𝗼𝗿𝘆.

There’s more to Bitcoin than its monetary properties of scarcity, portability, durability, divisibility, fungibility, verifiability, and immutability. Bitcoin is also 𝗰𝗲𝗻𝘀𝗼𝗿𝘀𝗵𝗶𝗽 𝗿𝗲𝘀𝗶𝘀𝘁𝗮𝗻𝘁, so individuals who wish to make purchases without their transactions being halted will prefer spending their bitcoin, even though it serves as a superior store of value.

There’s also more to fiat than it just being a worse store of value than Bitcoin: its value is 𝘤𝘰𝘯𝘵𝘪𝘯𝘶𝘪𝘯𝘨 to degrade every day, and the 𝘀𝘂𝗿𝘃𝗲𝗶𝗹𝗹𝗮𝗻𝗰𝗲 and 𝗰𝗲𝗻𝘀𝗼𝗿𝘀𝗵𝗶𝗽 it enables are constantly getting worse. Any business or customer who doesn’t want to have to deal with those things will want to use bitcoin instead.

Individuals and businesses will want to accept bitcoin for payment to accumulate it for long-term savings. But the only way they will be able to convince their employer or customer to part with their sats is by 𝗼𝗳𝗳𝗲𝗿𝗶𝗻𝗴 𝘁𝗵𝗲𝗺 𝗲𝗻𝗼𝘂𝗴𝗵 𝗼𝗳 𝗮𝗻 𝗶𝗻𝗰𝗲𝗻𝘁𝗶𝘃𝗲 𝘁𝗼 𝗱𝗼 𝘀𝗼. Bitcoin’s censorship resistance and privacy qualities might be enough incentive for some, but others will need more, such as discounts or a pay cut, to entice the sender to pay with sats instead of fiat.

Eventually, fiat currencies 𝘢𝘭𝘸𝘢𝘺𝘴 collapse. As each one does, its velocity starts resembling an ever-accelerating game of “hot potato”, in which no one wants to hold fiat for longer than they need to, and little by little, 𝗲𝘃𝗲𝗿𝘆𝗼𝗻𝗲 𝘀𝘁𝗼𝗽𝘀 𝗮𝗰𝗰𝗲𝗽𝘁𝗶𝗻𝗴 𝗶𝘁 𝗳𝗼𝗿 𝗽𝗮𝘆𝗺𝗲𝗻𝘁 𝗲𝗻𝘁𝗶𝗿𝗲𝗹𝘆. At that point, fiat burns itself out like a supercharged lightbulb, and everyone is incentivized to use the better money as their medium of exchange — provided it has properties like portability and divisibility to make it possible.

So while Gresham’s Law is accurate, there are more facts to consider. As people follow their incentives, they will want to use bitcoin more and fiat less, 𝘂𝗻𝘁𝗶𝗹 𝗯𝗶𝘁𝗰𝗼𝗶𝗻 𝗶𝘀 𝘁𝗵𝗲 𝗼𝗻𝗹𝘆 𝗺𝗼𝗻𝗲𝘆 𝘁𝗵𝗮𝘁 𝗮𝗻𝘆𝗼𝗻𝗲 𝘄𝗶𝗹𝗹 𝗮𝗰𝗰𝗲𝗽𝘁 𝗳𝗼𝗿 𝘁𝗵𝗲𝗶𝗿 𝘁𝗶𝗺𝗲 𝗮𝗻𝗱 𝗹𝗮𝗯𝗼𝗿. This process can move slowly, as we wait for everyone’s incentives to gradually lead them to Bitcoin, or we can speed it up by providing the needed education. Which is exactly why I’m here.

What did you think of 𝘵𝘩𝘢𝘵 FUD takedown?

Give it a 𝗟𝗶𝗸𝗲🤙 if you agree with me, and 𝗦𝗵𝗮𝗿𝗲🔄 this with whoever thinks that Bitcoin can never be a medium of exchange.

𝗕𝗼𝗼𝗸𝗺𝗮𝗿𝗸🔖 this post so you can find it easily when you need it.

Think you can answer this better?

Write your answer in the 𝗰𝗼𝗺𝗺𝗲𝗻𝘁𝘀👇

𝟱𝟬𝟬𝟬 𝘀𝗮𝘁𝘀 𝘄𝗶𝗹𝗹 𝗴𝗼 𝘁𝗼 𝘄𝗵𝗼𝗲𝘃𝗲𝗿 𝘄𝗿𝗶𝘁𝗲𝘀 𝘁𝗵𝗲 𝗯𝗲𝘀𝘁 𝗶𝗻 𝘁𝗵𝗲 𝗻𝗲𝘅𝘁 𝟮𝟰 𝗵𝗼𝘂𝗿𝘀!