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Should Bitcoin Replace Currency of Central Banks?

What may be 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 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 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. That is something similar to split of share in the stock market. Companies sometimes split a stock into two or five or ten dependant on the market value. This will increase the level of transactions. Therefore, while the intrinsic value of a currency decreases over a period, the intrinsic value of Bitcoin increases as demand for the coins increases. Consequently, hoarding of Bitcoins automatically enables an individual to generate a profit. Besides, the initial holders of Bitcoins will have a huge advantage over other Bitcoin holders who entered the market later. In 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 available in the market. However, this money is not going to the central banks. Instead, it would go to a few individuals who is able to become a central bank. In fact, companies are allowed to raise capital from the marketplace. However, they are regulated transactions. This means because the total value of Bitcoins increases, the Bitcoin system will have the strength to hinder central banks’ monetary policy.

Bitcoin is highly speculative

How do you purchase 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 the price goes up. It means Bitcoin acts such as a virtual commodity. You can hoard and sell them later for a profit. Imagine if Bitcoin Cash Token of Bitcoin boils down? Of course, you will 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 put into the public ledger, referred to as the black chain, as well as the means by which new Bitcoins are released.

How liquid may be the Bitcoin? It depends upon the quantity 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 case of Bitcoin, it appears free float and demand are the factors that determine its price. The high volatility of Bitcoin price is due to less free float and more demand. The value of the virtual company is dependent upon their members’ experiences with Bitcoin transactions. We would get some useful feedback from its members.

What could be one big problem with this particular system of transaction? No members can sell Bitcoin if they don’t have one. This means you must first acquire it by tendering something valuable you own 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 surely go to other members who are not the initial 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 in their market, the original producers can slowly release their bitcoins into the system and create a huge profit.

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