The original Bitcoin Whitepaper set out to make Bitcoin a digital currency capable of solving the double-spending problem without relying on a trusted 3rd party. Since its creation Bitcoin has achieved its goal of preventing double spending in a trustless network and now looks to establish itself as a broadly used currency. Crypto fans and investors hope someday that Bitcoin, and other cryptocurrencies, will rival fiat currencies like the Dollar, Euro, and Yen in terms of price stability and acceptance as a form of payment.
In order for Bitcoin to achieve this preeminence it has a number of hurdles to overcome. Some of these hurdles are technical, such as decreasing the block time and increasing the number of transactions per second. But other problems can’t be solved by any amount of code and will require a bit of luck to provide the right environment for the currency to flourish. Specifically I would like to talk about Gresham's Law.Gresham’s Law Elaborated
Let’s do a thought experiment. Suppose everywhere that accepts credit cards also accepts Bitcoin as a form of payment (a scenario that will soon be reality if TenX is successful). If you were to fill your car with $30 of petrol what method would pay with? US dollars or Bitcoin? I would guess the vast majority of you would pay with fiat. Why?
Your answer to this question depends on two things: your ability to pay using either currency and the value you assign to either currency. If you do not have enough of one currency to pay for the petrol then you will be forced to pay with the currency you have more of. But in our thought experiment let’s say you have ample amounts of both currencies. Then your decision to pay with Bitcoin or pay with fiat will depend upon which currency you value more.
In this situation Gresham’s Law dictates you pay with the currency you value least. Now, given the recent hype regarding Blockcha...