VHS vs Betamax

facebook <-> myspace
xanga <-> livejournal
etc.

Gresham's law says that people will choose to spend bad money when merchants are required to accept both good and bad money. If the king says " All of the coins I minted are forever worth 1lb" then you will select your ugliest, most shaved coin to spend first. If the merchant balks, you take him to the king for his beheading.

Gresham's law does not say that people will choose to accept a less good money of their own will.

Understood, but I don't think your point is well supported.

In my example, I specified that I manipulated the price so both coins initially traded at parity. Meaning if the merchant takes either to Liberty's exchange he gets the same amount of $. If he takes them to another exchange he can swap them one-for-one for bitcoins.

What does he care in the short run? Why would he choose not to accept what people had to offer?
It's actually less significant than someone saying, "I'll sell it to you for $10 greenbacks but I don't want a $10 roll of quarters." That's just bad business.

As the relative value diverges, there is always a ratio that represents equivalence. Why would a merchant not trade at that value for zitcoins? If he was going to immediately spend them there is no reason to care what equivalent representation he passed along. If he wanted to keep them he could immediately swap the zitcoins for bitcoins. Again no reason not to trade in them.


Nothing is stopping me from requiring my customers to pay me in gold. Except the fact that my customers don't have an easy cache of gold. Sure they could trade their dollars for gold and then buy my warez. But I doubt they would bother if a competing merchant sold the same warez for the dollars they already have.

Let's make it a more concrete example, maybe that will help us see if I'm full of it.

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It is commonly known that bitcoin's fixed-quantity monetary policy is popular among libertarians.

Galuel recently proposed an expand at 5%/yr monetary policy with a distribution sure to be popular with French socialists.

Right now bitcoin's market cap is trivially small. It is not inconceivable that Galuel could find a wealthy French liberal to back a bitcoin alternate that better suits their (slightly silly) view of the world. All this is extremely cheap as political statements go. He could do all of this for 10% the price of one TV commercial.

Let's say that Galuel realized that Knightmb has lots of BTC sitting around doing nothing. So he cut a deal with Knightmb to buy up half his stash for French Euros. All this took place off the market so it didn't effect BTC prices elsewhere.

Now let's also postulate that Galuel doesn't auto-generate coins like bitcoin. Instead he just generates 1 Trillion ZTC into his own account. Then he sets monetary policy by giving them out however matches his short and long term goals. He also has an initial stash of Euros/Dollars from the wealth Frenchman.

Now he starts promoting zitcoin as the progressive alternative to the regressive bitcoin system. All socialist should shun bitcoin and use zitcoin.

He sets a price to sell his unlimited zitcoins at one bitcoin or the equivalent in Euros. Now like here, people show up just to see what zitcoin is about and to help support global socialism. They realize all of this is cheap and buy some ZTC just on principle using Euros.

To support the currency, he promises to buy ZTC for equivalent BTC, but only from merchants. Now there is a merchant incentive to take them. People have them, why not take their money. Those people don't have BTC and don't want BTC.

Now keep in mind Galuel has a 100% reserve of Euros backing his ZTC at current BTC to Euro rates. But he has no need to spend it. He also has a stash of BTC he bought from knightmb. At the current volume, say he could keep ZTC trading at parity for at least year. Remember initially Galuel is simply slowly selling the cheap BTC at a profit in Euros.

That is enough to gain traction and to give his currency the same perceived value as BTC in most people and merchant's minds. People will begin to trade these among themselves at parity as well. Every time a merchant doesn't trade a ZTC for a BTC, he can support the currency longer.

Eventually he announces it is time for a 5% "progressive" bonus for each user rich and poor alike. So he start handing out more money. Then more and more. By its very nature, this will upset BTC libertarians because it effects the total volume of things that people see as fungible.

Eventually the libertarians will pester the socialist NOT to peg their ZTC to the BTC. Galuel will quit swapping any excess BTC he has left. And will tell merchants to swap it on the exchange. Prices will start to diverge.

It seems plausible as a hypothetical.


What happens next I'm really not sure.

It seems to me that at least initially, people would save their BTC and spend their ZTC. As BTC customer numbers declined, it seems hard to resist the number of customers offering ZTC.

I could be wrong though. Show me.

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Disclaimer: I'm NOT proposing that Galuel's progressive inflating currency is a good monetary policy. I think it is a silly policy.
I'm posing ZTC as a type of Gresham bad money vs BTC as Gresham good money.
 

Well, okay. But you are just saying that if someone is willing to give enough money away they can change the price of something.

I also agree that it probably won't diverge as quickly as it 'should' out of people's habit. If you can pay to hold parity for a generation you can probably hold it artificially and cheaply for a whole nother generation or longer.

So.. we agree.

The only variable would be how much does it cost. That commercial you describe could backfire. If bitcoin is known by 5 in a million in france and this would mean The Socialist would have to spend 10k to hold parity for a year and now bitcoin and zitcoin is known by even 50k in a million it will cost much much more even if most don't care about holding bitcoin, 1% of those would still be a huge increase in holding interest.

But anyway, there is obviously some amount of money that would be enough, and figuring out what is would be silly.

So, yes. If you pay people to use something they will use more than they would otherwise. Even something called zitcoin.