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’s a virtual currency not authorized by a central bank. However, Bitcoin holders may be able to transfer Bitcoins to another account of a Bitcoin member in exchange of goods and services and also central bank authorized currencies.
Inflation will bring down the true value of bank currency. Short-term fluctuation in demand and offer 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 have recently witnessed the split of Bitcoin. That is something like split of share in the currency markets. Companies sometimes split a stock into two or five or ten dependant on the market value. This can increase the volume of transactions. Therefore, as 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 generate a profit. Besides, the original holders of Bitcoins could 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 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 act like a central bank. Actually, companies are permitted to raise capital from the marketplace. However, cryptocurrency 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 has to 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. It means Bitcoin acts like a virtual commodity. It is possible to hoard and sell them later for a profit. Imagine if the price of Bitcoin comes down? Of course, you will lose your money similar to the way you lose money in stock market. Addititionally there is another method 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, plus 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 business, free float, demand and offer, etc. In the event of Bitcoin, it seems free float and demand will be the factors that determine its price. The high volatility of Bitcoin price is due to less free float and much more demand. The value of the virtual company depends 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. This means you have to first acquire it by tendering something valuable you possess or through Bitcoin mining. A large chunk of these valuable things ultimately goes to a person who is 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 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 within their market, the original producers can slowly release their bitcoins into the system and create a huge profit.