Should Bitcoin Replace Currency of Central Banks?

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 a central bank. However, Bitcoin holders might be able to transfer Bitcoins to some other account of a Bitcoin member in trade of goods and services and even central bank authorized currencies.

Inflation will bring down the true value of bank currency. Short term fluctuation in demand and supply of bank currency in money markets effects change in borrowing cost. However, the facial skin value remains the same. In the event of Bitcoin, its face value and real value both changes. We have recently witnessed the split of Bitcoin. This is something like 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, as 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 could have a huge advantage over other Bitcoin holders who entered the market 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 in the market. However, this money is not going to the central banks. Instead, it goes to a few individuals who can act like a central bank. In fact, companies are allowed to raise capital from the marketplace. However, they are regulated transactions. This means as the total value of Bitcoins increases, the Bitcoin system could have the strength to hinder central banks’ monetary policy.

Spice is highly speculative

How do you buy a Bitcoin? Naturally, somebody has to 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 the price goes up. This means Bitcoin acts like a virtual commodity. You can hoard and sell them later for a profit. What if the price of Bitcoin comes down? Of course, you will lose your money just like the way you lose cash in stock market. Addititionally there is another method of acquiring Bitcoin through mining. Bitcoin mining is the process where transactions are verified and added to the public ledger, known as the black chain, plus the means by 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 is dependent upon factors such as for example value of the company, free float, demand and offer, 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 because of less free float and much more demand. The value of the virtual company is dependent upon their members’ experiences with Bitcoin transactions. We may 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 have to first acquire it by tendering something valuable you own or through Bitcoin mining. A big chunk of the valuable things ultimately goes to a person who may be 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 will also lose their valuables. As demand for Bitcoin increases, the original seller can produce more Bitcoins as is being done by central banks. As the price of Bitcoin increases in their market, the original producers can slowly release their bitcoins in to the system and create a huge profit.

Leave a Reply

Comment
Name*
Mail*
Website*