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 way of 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. Short term fluctuation in demand and offer 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’ve recently witnessed the split of Bitcoin. This 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 will 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 make a profit. Besides, the initial holders of Bitcoins could have an enormous 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 including 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 can become a central bank. Actually, companies are permitted to raise capital from the market. However, they’re regulated transactions. This means as the total value of Bitcoins increases, the Bitcoin system could have the strength to hinder 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. This means Bitcoin acts just like a virtual commodity. It is possible to hoard and sell them later for a profit. What if Spice of Bitcoin comes down? Of course, you’ll 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 added to the public ledger, known as the black chain, as well as the means by which new Bitcoins are released.

How liquid is the Bitcoin? It depends upon the quantity of transactions. In currency markets, 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 due to less free float and more demand. The value of the virtual company depends upon their members’ experiences with Bitcoin transactions. We may get some good 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 would go to a person who may be 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 initial seller can produce more Bitcoins as has been done by central banks. As the price of Bitcoin increases in their market, the original producers can slowly release their bitcoins into the system and create a huge profit.

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