The difference between Bitcoin and Currency in Central Banks
What is the difference between central bank authorized money and Bitcoin? The authorized money bearer of the central bank can only sell it for the exchange of goods and services. The holder of Bitcoins cannot soften it because it is a virtual currency that is not authorized by a central bank. However, Bitcoin holders may be able to transfer Bitcoins to another Bitcoin member’s account in exchange for goods and services and even authorized central bank currencies.
Inflation will lower the real value of bank money. Short-term fluctuations in the demand and supply of bank money in the money markets impact fluctuations in the cost of borrowing. However, the surface value remained the same. In the case of Bitcoin, its face value and its true value both change. We have recently witnessed the split in Bitcoin. It’s like splitting the stock market share. Sometimes companies divide a stock into two or five or ten depending on the market value. This will increase the number of transactions. Thus, while the intrinsic value of a currency decreases over a period of time, the intrinsic value of Bitcoin increases as the demand for coins increases. As a result, hiding Bitcoins will automatically enable someone to make a profit. Besides, initials holding Bitcoins have a huge advantage over other Bitcoin holders who enter the market later. In that sense, Bitcoin behaves like an asset whose value increases and decreases as reflected in the change in its price.
If the original producers including the miners sold Bitcoin to the public, the money supply would decrease in the market. However, this money does not go to central banks. However, it will go to some individuals who can act like a central bank. In fact, companies are allowed to raise capital from the market. However, they are regulated transactions. This means that as the overall value of Bitcoins rises, the Bitcoin system has the potential to disrupt the monetary policy of central banks.
Bitcoin is so speculative
How do you buy Bitcoin? Naturally, someone has to sell it, sell it for an amount, an amount chosen by the Bitcoin market and possibly by the sellers themselves. If there are more buyers than sellers, then the price will go up. This means that Bitcoin acts like a virtual commodity. You can save and sell it later to make a profit. What if the price of Bitcoin goes down? Of course, you will lose your money just like you lose money in the stock market. There is also another way to acquire Bitcoin through mining. Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the black chain, and also the ways in which new Bitcoins are released.
How liquid is Bitcoin? It depends on the number of transactions. In the stock market, the liquidity of a stock depends on things like the value of the company, free float, demand and supply, and so on. The high volatility in the Bitcoin price is due to less free float and increased demand. The value of the virtual company depends on the experiences of their members in Bitcoin transactions. We may get some useful feedback from its members.
What could be a major problem with this transaction system? No members can sell Bitcoin without them. This means you have to first get it by donating something of value that you own or by mining Bitcoin. A large chunk of these valuable things will eventually go to someone who was the original Bitcoin seller. Of course, some amount as profit will definitely go to other members who are not original producers of Bitcoins. Some members will also lose their valuables. As the demand for Bitcoin grows, the original seller will be able to make as many Bitcoins as the central banks do. As the price of Bitcoin rises in their market, the original producers can slowly release their bitcoins into the system and make huge profits.
Bitcoin is a private virtual financial instrument that is not regulated
Bitcoin is a virtual financial instrument, even if it does not qualify to be a full -fledged currency, nor does it have legal sanctity. If Bitcoin holders set up a private tribunal to resolve their issues arising from Bitcoin transactions then they won’t have to worry about legal sanctity. Therefore, it is a private virtual financial instrument for an exclusive group of people. People with Bitcoins will be able to buy many goods and services in the public domain, which will disrupt the normal market. This could be a challenge for regulators. The inaction of regulators could create another financial crisis as happened during the 2007-08 financial crisis. As usual, we can’t judge the tip of the iceberg. We can’t predict the damage it will do. Only in the last stage can we see the whole thing, if we can do nothing but make an emergency exit to save the crisis. This, we’ve been experiencing since we started experimenting with things we want to control. We have succeeded in some and failed in many even without sacrifice and loss. Will we wait until we see the whole thing?