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 some other 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’ve 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 depending upon the market value. This can increase the volume 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 a person to make a profit. Besides, the initial holders of Bitcoins could have a huge advantage over other Bitcoin holders who entered the market later. In that sense, Bitcoin behaves like 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 general public, money supply is reduced available in the market. However, this money is not going to the central banks. Instead, it goes to a few individuals who is able to 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 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 you can find more buyers than sellers, then your price goes up. This means Bitcoin acts just like a virtual commodity. It is possible to hoard and sell them later for a profit. What if the price of Bitcoin comes down? Of course, you’ll lose your money similar to the way you lose cash in stock market. There is also another method of acquiring Bitcoin through mining. Bitcoin mining is the process by which transactions are verified and put into the public ledger, referred to as the black chain, plus the means through which new Bitcoins are released.
How liquid is the Bitcoin? It depends upon the volume of transactions. In stock market, the liquidity of a stock depends upon factors such as 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 because of less free float and much more demand. The worthiness of the virtual company depends upon their members’ experiences with Bitcoin transactions. We might get some good 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. blockchain 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. Needless to say, some amount as profit will certainly 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 has been done by central banks. As the price of Bitcoin increases within their market, the original producers can slowly release their bitcoins in to the system and create a huge profit.