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 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 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 have recently witnessed the split of Bitcoin. That 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 volume 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 produce 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 like the miners sell Bitcoin to the public, money supply is reduced on the market. bitcoin mixer However, this money is not going to the central banks. Instead, it goes to a few individuals who can act like a central bank. Actually, 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 will have the strength to hinder central banks’ monetary policy.
Bitcoin is highly speculative
How do you purchase a Bitcoin? Naturally, somebody must 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 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 just like the way you lose cash in stock market. Addititionally there is another method of acquiring Bitcoin through mining. Bitcoin mining is the process by which transactions are verified and added to the public ledger, referred to as the black chain, and also the means by which new Bitcoins are released.
How liquid is the Bitcoin? It depends upon the volume 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 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 more demand. The worthiness of the virtual company is dependent upon their members’ experiences with Bitcoin transactions. We might get some useful feedback from its members.
What could possibly be one big problem with this particular system of transaction? No members can sell Bitcoin should they don’t have one. It means you should 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 is the original seller of Bitcoin. Needless to say, some amount as profit will surely go to other members that are not the initial producer of Bitcoins. Some members may also lose their valuables. As demand for Bitcoin increases, the initial seller can produce more Bitcoins as has been done by central banks. Because the price of Bitcoin increases in their market, the original producers can slowly release their bitcoins into the system and create a huge profit.