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 a central bank. However, Bitcoin holders may be able to transfer Bitcoins to some other account of a Bitcoin member in exchange 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 similar to 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 level 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 make a profit. Besides, the original holders of Bitcoins will have a huge advantage over other Bitcoin holders who entered the market later. For the reason that sense, Bitcoin behaves as 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 available in the market. However, this money is not going to 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 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 the price goes up. It means Bitcoin acts like a virtual commodity. It is possible to hoard and sell them later for a profit. What if the price of Bitcoin boils down? Of course, you’ll lose your money similar to the way you lose money in stock market. There is also another method of acquiring Bitcoin through mining. Bitcoin mining may be the process where transactions are verified and added to 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 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 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 worthiness of the virtual company depends upon their members’ experiences with Bitcoin transactions. We would 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 need to first acquire it by tendering something valuable you possess or through Bitcoin mining. A big chunk of the valuable things ultimately would go to a person who may be 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 will 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 within their market, the original producers can slowly release their bitcoins into the system and make a huge profit. Paper wallet BITCOIN