What is the difference between central bank authorized currency and Bitcoin? The bearer of central bank authorized currency can merely tender it for exchange of goods and services. The holder of Bitcoins cannot tender it because it is 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 exchange 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 supply of bank currency in money markets effects change in borrowing cost. However, the face value remains the same. In case of Bitcoin, its face value and real value both changes. We’ve recently witnessed the split of Bitcoin. This is something similar to split of share in the currency markets. Companies sometimes split a stock into two or five or ten dependant on 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 a person to make a profit. Besides, the initial holders of Bitcoins could have a huge advantage over other Bitcoin holders who entered the marketplace later. In that sense, Bitcoin behaves like 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 general public, money supply is reduced on the market. However, convert bitcoin to usd 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 are regulated transactions. This means because the total value of Bitcoins increases, the Bitcoin system could 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 you can find more buyers than sellers, then your price goes up. It means Bitcoin acts just like a virtual commodity. You can hoard and sell them later for a profit. What if the price of Bitcoin boils down? Of course, you’ll lose your money just like the way you lose cash in stock market. There is also another way of acquiring Bitcoin through mining. Bitcoin mining is the process by which transactions are verified and added to the public ledger, referred to as the black chain, as well as the means through which new Bitcoins are released.
How liquid is the Bitcoin? It depends upon the volume of transactions. In currency markets, the liquidity of a stock depends upon factors such as for example value of the company, free float, demand and supply, etc. In the event of Bitcoin, it appears free float and demand are 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 would get some useful feedback from its members.
What could possibly be one big problem with this particular system of transaction? No members can sell Bitcoin if they don’t have one. It means you will need to first acquire it by tendering something valuable you possess or through Bitcoin mining. A large chunk of the valuable things ultimately goes to a person who may be the original seller of Bitcoin. Needless to say, some amount as profit will certainly go to other members that are not the original producer of Bitcoins. Some members will also lose their valuables. As demand for Bitcoin increases, the original seller can produce more Bitcoins as has been done by central banks. As the price of Bitcoin increases within their market, the original producers can slowly release their bitcoins in to the system and create a huge profit.
