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 way of a central bank. However, Bitcoin holders might be able to transfer Bitcoins to some other 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 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 like 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 of time, the intrinsic value of Bitcoin increases as demand for the coins increases. Consequently, hoarding of Bitcoins automatically enables an individual to create a profit. Besides, the original holders of Bitcoins will have a huge advantage over other Bitcoin holders who entered the marketplace later. For Bitcoin Cash Protocol 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 won’t the central banks. Instead, it goes to a few individuals who is able to act like a central bank. Actually, companies are permitted to raise capital from the marketplace. However, they’re 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 you can find more buyers than sellers, then the price goes up. This 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 will lose your money just like the way you lose cash in stock market. Addititionally there is another way of acquiring Bitcoin through mining. Bitcoin mining is the process where transactions are verified and put into the public ledger, known as the black chain, plus 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 business, free float, demand and offer, 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 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 must 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 that are not the original producer of Bitcoins. Some members will also lose their valuables. As demand for Bitcoin increases, the original seller can produce more Bitcoins as has been done by central banks. As the price of Bitcoin increases within their market, the initial producers can slowly release their bitcoins into the system and create a huge profit.