Gresham's Law and Cryptocurrency
Around 1558, when Elisabeth I sat on the throne for the first time, there lived an English banker. His name - Thomas Gresham. He was one of the wealthiest people in England and his economic genius had surely helped him get there.
Thomas Gresham wrote the queen a letter in which he stated a fact that would later become known as Gresham's Law. The last monarch, Henry VIII, had replaced about 40% of the silver content in the British shilling with worthless metal. These new coins pushed the quality coins out of circulation. Some keen minds though decided to collect these good coins and spend the bad ones, for they had less intrinsic value. This phenomenon is known as "Gresham's Law".
Around 1960, when the price of silver was not high at all, these good, silver coins started popping up again all around the world. However, when the price of silver rose above the nominal value of these coins, they disappeared again. People were hodling these silver coins.
To create "bad" money used to be to just lower the precious metal content in a coin. Today, making "bad" money is a lot easier. Because of the fact that precious metals aren't used anymore in today's currencies, the currency's value can be inflated by just printing more of it, inconsequentially. When people start holding coins, Gresham's law could be applicable.
Today, most of the people who own bitcoin don't spend it, they hold it. This is Gresham's Law in action. In this particular case, bitcoin, or any other digital currency, IS the better money.
And this makes complete sense.
Why would you spend something that increases in value the longer you hold it? In contrast, we have good old (one might even say obsolete) fiat. Why would anyone hold or save something that decreases in value? The rate of inflation is ABOVE the interest rate, which is not surprising, knowing that the latter is close to zero. The inflation rate is even catching up with the annual returns of bonds. Think about that for a second.
If Gresham's Law holds, and I'm willing to bet it will, cryptocurrencies will globally replace fiat for a large part.