Should Bitcoin Replace Currency of Central Banks?

Variation 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 simply tender it for exchange of products and services. The holder of Bitcoins cannot tender it due to the fact it’s a virtual currency not certified by a central bank. However , Bitcoin holders may be able to transfer Bitcoins to a different account of a Bitcoin member in exchange of goods and services and even central bank authorized currencies.

Inflation brings down the real value of bank currency. Short term fluctuation in demand and supply associated with bank currency in money marketplaces effects change in borrowing cost. However , the face value remains exactly the same. In case of Bitcoin, its face value and real value both changes. We have recently witnessed the divided of Bitcoin. This is something like divided of share in the stock market. Companies sometimes split a stock into two or five or ten based upon the market value. This will increase the volume of transactions. Therefore , while the intrinsic associated with a currency decreases over a period of time, the intrinsic value of Bitcoin boosts as demand for the coins raises. Consequently, hoarding of Bitcoins instantly enables a person to make a profit. Apart from, the initial holders of Bitcoins will have a huge advantage over other Bitcoin holders who entered the market later. In that sense, Bitcoin behaves as an asset whose value increases and decreases as is evidenced by its price volatility.
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When the original suppliers including the miners sell Bitcoin towards the public, money supply is decreased in the market. However , this money is not going to the central banks. Instead, it goes to a few individuals who can act like a central bank. In fact , companies are allowed to raise capital from the market. Nevertheless , they are regulated transactions. This means because the total value of Bitcoins increases, the particular Bitcoin system will have the strength to interfere with central banks’ monetary policy.

Bitcoin is highly speculative

How can you buy a Bitcoin? Naturally, somebody has to sell it, sell it for a value, the value decided by Bitcoin marketplace and probably by the sellers themselves. If there are more buyers compared to sellers, then the price goes up. This means Bitcoin acts like a virtual item. You can hoard and sell them later on for a profit. What if the price of Bitcoin comes down? Of course , you will lose your cash just like the way you lose money in stock market. There is also another way of acquiring Bitcoin through mining. Bitcoin mining could be the process by which transactions are confirmed and added to the public ledger, known as the black chain, and also the means through which new Bitcoins are released.

Exactly how liquid is the Bitcoin? It depends upon the volume of transactions. In stock market, the liquidity of a stock depends upon factors such as value of the company, totally free float, demand and supply, etc . In the event of Bitcoin, it seems free float and demand are the factors that figure out its price. The high volatility of Bitcoin price is due to less free float and more demand. The value of the particular virtual company depends upon their members’ experiences with Bitcoin transactions. We would get some useful feedback from its members.

What could be one big problem with this system of transaction? No users can sell Bitcoin if they have no one. It means you have to first get it by tendering something valuable you possess or through Bitcoin mining. A sizable chunk of these valuable things eventually goes to a person who is the original seller of Bitcoin. Of course , some quantity as profit will certainly go to some other members who are not the original manufacturer of Bitcoins. Some members may also lose their valuables. As need for Bitcoin increases, the original vendor can produce more Bitcoins as is getting done by central banks. As the price of Bitcoin increases in their market, the original producers can slowly discharge their bitcoins into the system plus make a huge profit.

Bitcoin is a private virtual financial instrument which is not regulated

Bitcoin is a virtual economic instrument, though it does not qualify to become a full-fledged currency, nor does it have legal sanctity. If Bitcoin holders setup private tribunal to settle their issues arising out of Bitcoin transactions they might not worry about legal sanctity. Hence, it is a private virtual financial instrument for an exclusive set of people. People who have Bitcoins will be able to buy huge amounts of goods and services in the public domain, which can destabilize the normal market. This is a challenge to the regulators. The inaction of regulators can create another economic crisis as it had happened during the economic crisis of 2007-08. As usual, we are unable to judge the tip of the iceberg. We will not be able to predict the damage it could produce. It’s only at the last stage that we see the whole thing, when we are incapable of doing anything other than an emergency exit to survive the turmoil. This, we have been experiencing since all of us started experimenting on things which usually we wanted to have control over. All of us succeeded in some and failed in several though not without sacrifice and loss. Should we wait until we see the whole thing?

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