Should Bitcoin Replace Currency of Central Banks?

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 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 have recently witnessed the split of Bitcoin. This is something like split of share in the currency markets. Companies sometimes split a stock into two or five or ten depending upon the market value. This can 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 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 including 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 can become a central bank. Actually, companies are permitted 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 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 like a virtual commodity. You can hoard and sell them later for a profit. What 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 may be the process where transactions are verified and put into the public ledger, known as the black chain, and also the means by which new Bitcoins are released.

How liquid may be the Bitcoin? It depends upon the volume of transactions. In stock market, the liquidity of a stock is dependent upon factors such as value of the company, free float, demand and offer, etc. In case of Bitcoin, it appears free float and demand will be the factors that determine its price. The high volatility of Bitcoin price is due to less free float and more demand. The worthiness of the virtual company depends upon their members’ experiences with Bitcoin transactions. We might get some good useful feedback from its members.

What could possibly be one big problem with this system of transaction? No members can sell Bitcoin should they don’t have one. This means you should first acquire it by tendering something valuable you possess or through Bitcoin mining. A big chunk of these valuable things ultimately would go to a person who is the original seller of Bitcoin. Of course, 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 initial seller can produce more Bitcoins as has been done by central banks. Because cryptocurrency of Bitcoin increases within their market, the original producers can slowly release their bitcoins in to the system and make a huge profit.

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