Should Bitcoin Replace Currency of Central Banks?
What is the difference between central bank authorized currency and Bitcoin? Spice of central bank authorized currency can merely tender it for exchange of goods and services. The holder of Bitcoins cannot tender it because it’s a virtual currency not authorized by way of a central bank. However, Bitcoin holders may be able to transfer Bitcoins to some other account of a Bitcoin member in trade of goods and services and also central bank authorized currencies.
Inflation will bring down the real value of bank currency. Short term fluctuation in demand and offer of bank currency in money markets effects change in borrowing cost. However, the facial skin value remains the same. In case of Bitcoin, its face value and real value both changes. We have recently witnessed the split of Bitcoin. That is something similar to split of share in the stock market. Companies sometimes split a stock into two or five or ten depending upon the market value. This will increase the volume of transactions. Therefore, while the intrinsic value of a currency decreases over a period of time, the intrinsic value of Bitcoin increases as demand for the coins increases. Consequently, hoarding of Bitcoins automatically enables an individual to create a profit. Besides, the initial holders of Bitcoins could have an enormous advantage over other Bitcoin holders who entered the marketplace later. For the reason that sense, Bitcoin behaves as an asset whose value increases and decreases as is evidenced by its price volatility.
When the original producers like the miners sell Bitcoin to the public, money supply is reduced on the market. However, this money is not going to the central banks. Instead, it would go to a few individuals who can become a central bank. Actually, companies are permitted to raise capital from the market. However, they’re regulated transactions. This means because the total value of Bitcoins increases, the Bitcoin system will have the strength to interfere with central banks’ monetary policy.
Bitcoin is highly speculative
How do you buy a Bitcoin? Naturally, somebody must sell it, sell it for a value, a value decided by Bitcoin market and probably by the sellers themselves. If there are more buyers than sellers, then your price goes up. This means Bitcoin acts such as a virtual commodity. You can hoard and sell them later for a profit. Imagine if the price of Bitcoin comes down? Of course, you’ll lose your money similar to the way you lose cash in stock market. Addititionally there is another way of acquiring Bitcoin through mining. Bitcoin mining may be the process by which transactions are verified and added to the public ledger, known as the black chain, as well as the means through which new Bitcoins are released.
How liquid is the Bitcoin? It depends upon the quantity of transactions. In stock market, the liquidity of a stock depends upon factors such as value of the business, free float, demand and supply, etc. In case of Bitcoin, it seems free float and demand will be the factors that determine its price. The high volatility of Bitcoin price is because of less free float and much more demand. The worthiness of the virtual company is dependent upon their members’ experiences with Bitcoin transactions. We may get some good useful feedback from its members.
What could possibly be one big problem with this particular system of transaction? No members can sell Bitcoin should they don’t have one. This means you have to first acquire it by tendering something valuable you own or through Bitcoin mining. A large chunk of the valuable things ultimately would go to a person who is the original seller of Bitcoin. Of course, some amount as profit will certainly go to other members who are not the original producer of Bitcoins. Some members may also lose their valuables. As demand for Bitcoin increases, the original seller can produce more Bitcoins as is being done by central banks. Because the price of Bitcoin increases within their market, the original producers can slowly release their bitcoins into the system and make a huge profit.