Should Bitcoin Replace Currency of Central Banks?
Distinction between Bitcoin and 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's a virtual currency not authorized by a central bank. However, Bitcoin owners may be able to transfer Bitcoins to another account of a Bitcoin member in return of goods and services and even central bank authorized currencies.coin mixer
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 have recently witnessed the split of Bitcoin. This is similar to split of share in the stock market. Companies sometimes split a stock into two or five or ten depending upon the market value. This will increase the volume of transactions. Therefore, while the inbuilt value of a currency decreases over a period of time, the inbuilt value of Bitcoin increases as demand for the coins increases. Consequently, hoarding of Bitcoins automatically enables a person to brew a profit. Besides, the initial owners of Bitcoins will have a huge advantage over other Bitcoin owners who entered the market later. In that sense, Bitcoin behaves such as an asset whose value increases and decreases as is verified 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 goes to a few individuals who can behave like a central bank. In fact, companies are allowed to raise capital from the market. However, they are 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 assuming
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 the price increases. It means Bitcoin acts like a virtual stock options. You can hoard and sell them later for a profit. What if the price of Bitcoin comes down? Of course, you will lose your money just like the way you lose money 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 archipelago, and also the means whereby new Bitcoins are released.
How liquid is the Bitcoin? It depends upon the quantity of transactions. In stock market, the liquidity of a stock depends upon factors such as value of the company, free move, demand and supply, etc. In case of Bitcoin, it seems free move and demand are the factors that determine its price. The high volatility of Bitcoin price is due to less free move and more demand. The value of the virtual company depends upon their members' experiences with Bitcoin transactions. We might get some useful feedback from its members.