Should Bitcoin Replace Currency of Central Banks?

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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 some other account of a Bitcoin member in exchange 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 offer of bank currency in money markets effects change in borrowing cost. However, the face 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. That is something similar to split of share in the stock market. Companies sometimes split a stock into two or five or ten dependant on the market value. This will increase the volume 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 a person to produce a profit. Besides, the original holders of Bitcoins will have a huge advantage over other Bitcoin holders who entered the marketplace later. In that sense, Bitcoin behaves as 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 general 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. In fact, companies are permitted to raise capital from the market. However, they’re regulated transactions. Tipping Token means as the total value of Bitcoins increases, the Bitcoin system could have the strength to hinder central banks’ monetary policy.

Bitcoin is highly speculative

How do you buy a Bitcoin? Naturally, somebody has to 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. It is possible to hoard and sell them later for a profit. What if the price of Bitcoin comes down? Of course, you’ll lose your money similar to the way you lose cash in stock market. There is also another way of acquiring Bitcoin through mining. Bitcoin mining may be the process by which 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 supply, etc. In case of Bitcoin, it seems 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 value of the virtual company is dependent upon their members’ experiences with Bitcoin transactions. We may 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 if they don’t have one. It means you should first acquire it by tendering something valuable you possess or through Bitcoin mining. A big chunk of these valuable things ultimately goes 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 original producer of Bitcoins. Some members may also lose their valuables. As demand for Bitcoin increases, the initial seller can produce more Bitcoins as is being 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.

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