Variation between Bitcoin and Currency associated with Central Banks
What is the difference in between central bank authorized currency and Bitcoin? The bearer of central bank authorized currency can merely tender it for exchange of products and services. The holder of Bitcoins cannot tender it because it’s a virtual currency not authorized by a central bank. However , Bitcoin holders may be able to transfer Bitcoins to a different account of a Bitcoin member in return 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 supply associated with 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 adjustments. 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 amount of transactions. Therefore , while the intrinsic associated with a currency decreases over a period of period, the intrinsic value of Bitcoin improves as demand for the coins raises. Consequently, hoarding of Bitcoins immediately 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 on. In that sense, Bitcoin behaves such as an asset whose value increases plus decreases as is evidenced by the price volatility.
When the original producers 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 the central bank. In fact , companies are permitted to raise capital from the market. Nevertheless , they are regulated transactions. This means as the total value of Bitcoins increases, the Bitcoin system will have the strength to interfere with central banks’ financial policy.
Bitcoin is highly speculative
How do you buy a Bitcoin? Naturally, somebody needs 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. It indicates Bitcoin acts like a virtual product. You can hoard and sell them later for a profit. What if the price of Bitcoin comes down? Of course , you will lose your hard earned money just like the way you lose money in stock exchange. There is also another way of acquiring Bitcoin through mining. Bitcoin mining may be the process by which transactions are validated and added to the public ledger, known as the black chain, and also the means by which new Bitcoins are released.
Exactly how liquid is the Bitcoin? It depends upon the volume of transactions. In stock exchange, the liquidity of a stock depends on factors such as value of the company, free of charge float, demand and supply, etc . In case of Bitcoin, it seems free float and demand are the factors that determine its price. The high volatility associated with Bitcoin price is due to less free of charge float and more demand. The value of the virtual company depends upon their members’ experiences with Bitcoin transactions. We might get some useful feedback from its associates.
What could be one big problem with this system of transaction? No people can sell Bitcoin if they have no one. It means you have to first get it by tendering something valuable you own or through Bitcoin mining. A sizable chunk of these valuable things ultimately 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 producer of Bitcoins. Some members may also lose their valuables. As requirement for Bitcoin increases, the original seller can produce more Bitcoins as is becoming done by central banks. Because the price of Bitcoin increases in their market, the original producers can slowly launch 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 lawful sanctity. If Bitcoin holders setup private tribunal to settle their problems arising out of Bitcoin transactions they might not worry about legal sanctity. Therefore, it is a private virtual financial device for an exclusive set of people. People who have Bitcoins will be able to buy huge amounts of goods and services in the legal, which can destabilize the normal market. This is a challenge to the regulators. The inaction of regulators can create another financial crisis as it had happened during the financial crisis of 2007-08. As usual, we cannot judge the tip of the iceberg. We are going to not be able to predict the damage it can produce. It’s only at the final stage that we see the whole thing, when we are incapable of doing anything other than an emergency exit to survive the problems. This, we have been experiencing since all of us started experimenting on things which we wanted to have control over. We all succeeded in some and failed in many though not without sacrifice and loss.
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Should we wait till we see the whole thing?