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 might 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 facial skin 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 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, the intrinsic value of Bitcoin increases as demand for the coins increases. Consequently, hoarding of Bitcoins automatically enables an individual to produce a profit. Besides, the original holders of Bitcoins could have a huge advantage over other Bitcoin holders who entered the marketplace later. For the reason that sense, Bitcoin behaves like 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 on the market. However, this money won’t the central banks. Instead, it goes 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’re regulated transactions. This means as the total value of Bitcoins increases, the Bitcoin system will have the strength to interfere with central banks’ monetary policy.
Bitcoin is highly speculative
How do you purchase 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 the price goes up. This means Bitcoin acts just 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’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, known as the black chain, plus the means by which new Bitcoins are released.
How liquid may be the Bitcoin? It depends upon the volume of transactions. In currency markets, the liquidity of a stock depends upon factors such as 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 more demand. cryptocurrency 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 system of transaction? No members can sell Bitcoin if they don’t have one. This means you 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 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 initial seller can produce more Bitcoins as is being done by central banks. Because the price of Bitcoin increases within their market, the initial producers can slowly release their bitcoins into the system and make a huge profit.