Gresham’s Law, Gold and Cryptocurrency (2 of 2)
cryptocurrency·@getmgt·
0.000 HBDGresham’s Law, Gold and Cryptocurrency (2 of 2)
<html> <h1>Gresham’s Law, Gold and Cryptocurrency (2 of 2)</h1> <p><img src="http://www.prolibertyforum.com/wp-content/uploads/2016/06/Myphoto-300x300.jpg"/></p> <h2>So, how does Gresham’s Law and gold apply to cryptocurrencies?</h2> <p><br></p> <p>Well, let’s start at the beginning. Cryptocurrency has a few characteristics that are very favorable and resolve some of the problems that have plagued money over our history. </p> <p>Firstly, it’s production is not monopolized by a centralized government or by a central bank. <em>Taking it out of the hands of these entities eliminates any capricious activities that would alter its value over time.</em></p> <p>Like gold, it is difficult to come by and its base value is determined both by the “<em><strong>Labor Theory of Value</strong></em>” as well as the “<em><strong>Subjective Theory of Value</strong></em>”. That is to say, whereas the energy that goes into producing gold comes from <em>human labor and other mechanical means in its mining, processing, smelting, weighing and minting</em>, cryptocurrencies require a minimum of human labor, but require <em>massive amounts of electricity, very fast computer processors, complex communication infrastructures and data processing</em> to be produced. In addition, although a gold nugget may be the same weight and purity as a gold coin, people would value the coin more than the nugget for ease of use and for aesthetic reasons. The value they would place on it then becomes “<em><strong>subjective</strong></em>” rather than “<em><strong>objective</strong></em>”. <em>The same may be said for cryptocurrencies with regard to</em><em><strong> convertibility</strong></em>.</p> <p>Also, like gold, cryptocurrencies cannot be counterfeited.</p> <p>Unlike gold, and similarly to fiat currency, <em>cryptocurrencies have </em><em><strong>no real intrinsic value</strong></em><em> for use in industry and have </em><em><strong>no weight nor purity to be measured</strong></em><em>. It is as non-existent as the promise of a promissory note.</em></p> <h2>Some Thoughts on Convertibility</h2> <p><br></p> <p>As I have noted in the <a href="https://steemit.com/cryptocurrency/@getmgt/gresham-s-law-gold-and-cryptocurrency-1-of-2"><em><strong>previous post</strong></em></a>, the purchasing power of the U.S. Dollar was in a very slow, gradual decline from <em><strong>1933</strong></em> until the <em><strong>Nixon Shock</strong></em> of <em><strong>1971</strong></em>. After that, when it became “<em><strong>unhitched</strong></em>” from gold, its <em><strong>debasement has advanced exponentially </strong></em>to where it is today. The <em><strong>dollar is now just another monetary unit on a free-floating exchange </strong></em>which is also subject to the inflationary practices of the <em><strong>Federal Reserve System</strong></em> and the <em><strong>Federal Government.</strong></em></p> <h2>Herein lies the problem.</h2> <p><br></p> <p>As it stands now, if I were to<em> convert</em> <em><strong>Steem</strong></em> to<em><strong> dollars</strong></em>, I would first have to <em><strong>convert it to Bitcoin and then to dollars</strong></em>. It appears that <em>Bitcoin</em> is taking the place of gold in the middle of the transaction. Since <em>Steem</em> has a “<em><strong>floating</strong></em>” value compared to <em><strong>Bitcoin</strong></em> and the dollar’s value is <em><strong>floating</strong></em>, we are<em><strong> dealing with uncertain values which fluctuate at both ends of the transaction</strong></em>. I would suspect that the fluctuations in the <em>Bitcoin to dollars exchange </em>would be more likely to occur on the dollar side of the equation, since <em>Bitcoins</em>, by their nature, are not subject to inflation, though <em>subjective consumer confidence may play a role on the Bitcoin side.</em></p> <p>Now, suppose I wanted to <em>convert </em><em><strong>Steem</strong></em><em> to</em><em><strong> gold</strong></em><strong>.</strong> The transaction would be <em><strong>Steem to Bitcoin to dollars to gold</strong></em>. Here, we have two “<em><strong>fixed</strong></em>” values and two “<em><strong>floating</strong></em>” values within the same equation. The questions I would raise are these:</p> <p><em><strong>If our goal with cryptocurrencies is to escape from centralization, why should it still be necessary to include an instrument (any fiat currency), whose origin is from a central bank, in the equation at all? Why would we not want to set the convertibility directly to gold, instead of some paper fiat?</strong></em></p> <p>The<em><strong> benefit</strong></em> of this would be a <em><strong>relatively complete isolation from inflation on the pre-converted side</strong></em>. No matter what happens with the fiat currency in the marketplace, the “<em><strong>purchasing power</strong></em>” of the <em><strong>crypto </strong></em>would <em><strong>remain as stable as that of gold.</strong></em> The procedure to convert <em><strong>Steem to dollars</strong></em> would then be: <em><strong>Steem to Bitcoin to gold to dollars.</strong></em> </p> <p><em><strong>Gold, then, returns as the standard, intrinsic commodity of exchange.</strong></em></p> <h2>How does Gresham’s Law Apply?</h2> <p><br></p> <p>Remember, “<em><strong>bad money drives good money out of circulation</strong></em>”. The “<em>good</em>” money in this case becomes <em><strong>Steem, Bitcoin and gold</strong></em>. This money will go out of circulation and into <em><strong>savings</strong></em>, <em><strong>investments</strong></em> and <em><strong>retirement funds. </strong></em>It would become the <em><strong>basis of pensions</strong></em>, where its value will remain stable. <em><strong>There will be no need for “adjustments” for inflation of the fiat to keep up with increased pricing on goods and services in the market.</strong></em></p> <p>I believe this should be something to explore. I also believe that, in <em><strong>having direct convertibility to gold, there would be no doubt that consumer confidence and the acceptance, and autonomy, of cryptos would be assured.</strong></em></p> <p>I’d like to hear your opinions on this topic.</p> <p><br></p> </html>