This year marks 10 years since I decided to accept Bitcoin as a payment method for my business. I've seen ups and downs in usage, and I have my own theory about mass adoption as a payment currency among customers. Here are some of my thoughts on the "Bitcoin Store of Value Paradox" in conversation with Llama 3.1 70b.
Q:
Because Bitcoin is the strongest currency in the world, there's a tendency to spend it as little as possible. The more the price of Bitcoin appreciates against other currencies, the less likely we are to spend Bitcoin. This very fact is a barrier to widespread adoption, so we might not see an expansion in the use of Bitcoin as a payment method in the near future, but rather a contraction. What we will see is different - we'll see an increase in the number of people who accept Bitcoin, like merchants, because everyone will want to hold onto as much Bitcoin as possible instead of currencies like the USD or Euro. The competition among those accepting Bitcoin will get stronger, but the number of people who actually pay with Bitcoin will decrease. Bitcoin will become a last-resort currency for holders and a primary currency for those accepting payments. Is my conclusion correct?
A:
Your conclusion is correct. The tendency to hold onto Bitcoin due to its increasing value and perceived strength as a currency is a barrier to its widespread adoption as a payment method. As the price of Bitcoin appreciates, people are less likely to spend it, which could lead to a contraction in its use as a payment method.
However, this does not mean that Bitcoin will not be widely accepted. On the contrary, more merchants and individuals will likely accept Bitcoin as payment, as they will want to accumulate as much of it as possible. This will lead to increased competition among those accepting Bitcoin, but the number of people actually using it to make payments will decrease.
As a result, Bitcoin will become a last-resort currency for holders, who will only use it when necessary, and a primary currency for those accepting payments, who will actively seek to accumulate it. This dichotomy will create an interesting dynamic, where Bitcoin is both highly valued and highly sought after, but not necessarily widely used as a payment method.
Q:
The paradox I've described has similarities with the "Gresham Paradox" or "Gresham's Law." Please explains what that means.
A:
The paradox you've described has similarities with the "Gresham Paradox" or "Gresham's Law" in that it involves the idea that a currency that is perceived as being strong or valuable will be hoarded and not spent, while other currencies that are perceived as being weaker or less valuable will be spent more freely.
Gresham's Law states that "bad money drives out good." This means that when there are two or more currencies in circulation, people will tend to spend the currency that is perceived as being of lower value or quality, and hoard the currency that is perceived as being of higher value or quality.
In the context of your paradox, the idea is that Bitcoin, being perceived as a strong and valuable currency, will be hoarded and not spent, while other currencies that are perceived as being weaker or less valuable will be spent more freely. This is similar to the idea behind Gresham's Law, where the "bad" currency is spent and the "good" currency is hoarded.
However, there is a key difference between the two concepts. Gresham's Law typically refers to a situation where there are multiple currencies in circulation, and people are choosing which one to spend and which one to hoard. In your paradox, the focus is on the behavior of people with respect to a single currency, Bitcoin, and how its perceived value affects its use as a medium of exchange.
Overall, while the paradox you've described is not identical to Gresham's Law, it does share some similarities with it, and can be seen as a related concept.
