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 might be able to transfer Bitcoins to another 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. equipment -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 case of Bitcoin, its face value and real value both changes. We have 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 can increase the level 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 original holders of Bitcoins will have a huge 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 including the miners sell Bitcoin to the public, money supply is reduced in the market. However, this money won’t the central banks. Instead, it would go to a few individuals who is able to become a central bank. In fact, companies are permitted to raise capital from the marketplace. However, they are regulated transactions. This means as 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. This 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 boils down? Of course, you will lose your money similar to the way you lose money in stock market. There is also another method of acquiring Bitcoin through mining. Bitcoin mining may be the process where transactions are verified and put into the public ledger, known as the black chain, and also 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 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 due to less free float and much more demand. The value of the virtual company depends upon their members’ experiences with Bitcoin transactions. We may get some useful feedback from its members.
What could be one big problem with this particular system of transaction? No members can sell Bitcoin should they don’t have one. This means you will need 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 is the original seller of Bitcoin. Of course, some amount as profit will certainly go to other members that are not the initial producer of Bitcoins. Some members may also lose their valuables. As demand for Bitcoin increases, the initial seller can produce more Bitcoins as has been done by central banks. Because the price of Bitcoin increases in their market, the initial producers can slowly release their bitcoins in to the system and make a huge profit.