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 may be able to transfer Bitcoins to another account of a Bitcoin member in trade of goods and services and even 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 the event of Bitcoin, its face value and real value both changes. We have recently witnessed the split of Bitcoin. This is something like split of share in the stock market. Companies sometimes split a stock into two or five or ten depending upon 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 will have an enormous advantage over other Bitcoin holders who entered the marketplace 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 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’re 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 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 you can find more buyers than sellers, then the price goes up. It means Bitcoin acts like a virtual commodity. You can 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 cash in stock market. Addititionally there is another method of acquiring Bitcoin through mining. Bitcoin mining is 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 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 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 much more demand. The value of the virtual company is dependent 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 if they don’t have one. This means you should first acquire it by tendering something valuable you own or through Bitcoin mining. hardware 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 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 make a huge profit.

Leave a reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>