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 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 even 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 face 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 stock market. Companies sometimes split a stock into two or five or ten dependant on the market value. crypto can increase the level of transactions. Therefore, while 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 generate a profit. Besides, the original holders of Bitcoins could have a huge 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 including the miners sell Bitcoin to the public, money supply is reduced in the market. However, this money won’t the central banks. Instead, it would go to a few individuals who can act like a central bank. In fact, companies are allowed to raise capital from the marketplace. However, they are regulated transactions. This means because the total value of Bitcoins increases, the Bitcoin system will have the strength to hinder 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 such as a virtual commodity. It is possible to hoard and sell them later for a profit. Imagine if the price of Bitcoin comes down? Of course, you will lose your money just like the way you lose money in stock market. Addititionally there is another way 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 by which new Bitcoins are released.
How liquid may be the Bitcoin? It depends upon the quantity 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 seems free float and demand will be 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 is dependent upon their members’ experiences with Bitcoin transactions. We might get some good useful feedback from its members.
What could be one big problem with this system of transaction? No members can sell Bitcoin if they don’t have one. This means you will need to first acquire it by tendering something valuable you possess or through Bitcoin mining. A big chunk of the valuable things ultimately goes to a person who is 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 original seller can produce more Bitcoins as has been done by central banks. As the price of Bitcoin increases in their market, the initial producers can slowly release their bitcoins into the system and make a huge profit.