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 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 also central bank authorized currencies.
Inflation will bring down the true 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 the event of Bitcoin, its face value and real value both changes. We’ve recently witnessed the split of Bitcoin. This is something 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 can increase the volume of transactions. Therefore, as 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 a person to generate a profit. Besides, the original holders of Bitcoins will have a huge advantage over other Bitcoin holders who entered the market 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 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, Tipping Token are allowed 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 buy 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. It 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 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 may be the process where transactions are verified and added to the public ledger, referred to 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 depends upon factors such as 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 because of less free float and more demand. The worthiness of the virtual company depends upon their members’ experiences with Bitcoin transactions. We might get some 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 need to first acquire it by tendering something valuable you own or through Bitcoin mining. A large 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 original 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. 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.