Should Bitcoin Replace Central Bank Currency?

Difference between Bitcoin and Central Bank Currencies

What is the difference between a central bank authorized currency and Bitcoin? A bearer of a central bank proxy currency may offer it only for the exchange of goods and services. The owner of Bitcoins cannot tender it because it is a virtual currency that is not authorized by a central bank. However, Bitcoin holders can transfer Bitcoin to another Bitcoin member’s account to exchange goods and services and even central bank authorized currencies.

Inflation will lower the real value of bank currency. Short-term changes in the supply and demand for bank currency in money markets affect the cost of borrowing. However, the face value remains unchanged. In the case of Bitcoin, its face value and real value vary. We recently witnessed the Bitcoin split. It’s like a stock split. Companies sometimes split a share into two or five or ten parts, depending on the market value. This will increase the volume of transactions. Therefore, while the intrinsic value of the currency decreases over a period of time, the intrinsic value of Bitcoin increases as the demand for the coins increases. Consequently, accumulating bitcoins automatically allows one to earn. In addition, the first holders of bitcoins will have a huge advantage over other bitcoin holders who enter the market later. In this sense, Bitcoin behaves like an asset whose value goes up and down as evidenced by its price volatility.

When the original producers, including miners, sell Bitcoin to the public, the money supply in the market decreases. However, this money does not go to central banks. Instead, it goes to a few individuals who can act as central banks. In fact, companies are allowed to raise capital from the market. However, they are regulated transactions. This means that as the total value of bitcoins increases, the Bitcoin system will have the power to intervene in the monetary policy of central banks.

Bitcoin is highly speculative

How do you buy Bitcoin? Of course, someone has to sell it, sell it at a value determined by the Bitcoin market and probably by the sellers themselves. If there are more buyers than sellers, then the price goes up. This means that Bitcoin acts as a virtual commodity. You can collect and sell them later for profit. What if the price of Bitcoin goes down? Of course, you will lose money just like you lose money in the stock market. There is another way to get Bitcoin through mining. Bitcoin mining is a means of verifying transactions and adding them to a public ledger known as the black chain, as well as issuing new bitcoins.

How Liquid Is Bitcoin? It depends on the volume of transactions. The liquidity of a stock in the stock market depends on the value of the company, free circulation, supply and demand, etc. depends on factors such as In the case of Bitcoin, free float appears and demand are the factors that determine its price. The high volatility of Bitcoin price is due to less free float and more demand. The value of a virtual company depends on the experience of their members with Bitcoin transactions. We can get some useful feedback from its members.

What could be the big problem with this operating system? No member can sell Bitcoin. This means that you must first acquire something valuable that you own by auctioning or mining Bitcoin. A large portion of these valuables eventually goes to the person who is the original seller of the Bitcoin. Of course, some amount as profit will go to other members who are not the original producer of Bitcoins. Some members will also lose their valuables. As the demand for Bitcoin increases, the original seller can produce more Bitcoins, as done by central banks. As the price of Bitcoin increases in their markets, genuine producers can slowly release their bitcoins into the system and make huge profits.

Bitcoin is an unregulated private virtual financial instrument

Bitcoin is a virtual financial instrument, although it does not qualify to be a full-fledged currency and does not have legal sanctity. If Bitcoin owners set up a special tribunal to resolve their problems arising from Bitcoin transactions, then they may not worry about legal sanctity. Hence, it is a private virtual financial instrument for an exceptional group of people. People with bitcoins will be able to buy large quantities of goods and services in the public domain, which could destabilize the normal market. This will be a problem for regulators. Inaction by regulators could create another financial crisis, as it did during the financial crisis of 2007-08. As always, we cannot judge the tip of the iceberg. We cannot predict the damage it can cause. Only at the last stage, when we can do nothing but emergency exit to survive the crisis, we see everything. This is what we’ve been living with since we started experimenting with things we wanted to control. In some we have succeeded, and in many we have failed, although not without sacrifices and losses. Should we wait until we see everything?