The difference between bitcoin and the currency of central banks
What is the difference between the currency of an authorized central bank and Bitcoin? The holder of the approved currency of the central bank can only offer it for the exchange of goods and services. The owner of Bitcoin cannot offer it because it is a virtual currency that has not been authorized by the central bank. However, bitcoin owners may be able to transfer bitcoins to another bitcoin member account in exchange for goods and services, and even for authorized central bank currencies.
Inflation will reduce the real value of the bank’s currency. Short-term fluctuations in the demand and supply of bank currency in the money markets affect the change in the cost of borrowing. However, the face value remains the same. In the case of Bitcoin, its face value and actual value change. We have recently witnessed the division of Bitcoin. This is something like stock market sharing. Companies sometimes divide shares into two, five or ten depending on market value. This will increase the volume of transactions. Therefore, while the intrinsic value of a currency decreases over a period of time, the intrinsic value of Bitcoin increases as the demand for coins grows. Accordingly, the accumulation of bitcoin automatically allows a person to make a profit. In addition, the initial owners of Bitcoin will have a huge advantage over other owners of Bitcoin who later entered the market. In that sense, Bitcoin behaves as an asset whose value increases and decreases, which proves the volatility of its price.
When original producers, including miners, sell Bitcoin to the public, the money supply decreases in the market. However, this money does not go to central banks. Instead, it goes to a few individuals who can act as a central bank. In fact, companies are allowed to raise capital from the market. However, these are regulated transactions. This means that as the total value of Bitcoin increases, the Bitcoin system will have the power to interfere in the monetary policy of central banks.
Bitcoin is very speculative
How to buy Bitcoin? Of course, someone has to sell it, sell it for value, the value determined by the Bitcoin market, and probably the sellers themselves. If there are more buyers than sellers, then the price goes up. This means that Bitcoin behaves like a virtual commodity. You can collect them and sell them later for profit. What if the price of Bitcoin falls? Of course, you will lose your money just as you lose money in the stock market. There is 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, as well as the way new Bitcoins are released.
How liquid is bitcoin? It depends on the volume of transactions. In the stock market, stock liquidity depends on factors such as company value, free trade, supply and demand, etc. In the case of Bitcoin, free trade and demand seem to be the factors that determine its price. The high volatility of the Bitcoin price is a consequence of less free movement and higher demand. The value of a virtual company depends on the experience of their members with Bitcoin transactions. We may receive useful feedback from its members.
What could be one big problem with this transaction system? No member can sell Bitcoin without it. This means that you must first obtain it by offering something valuable that you own or through Bitcoin mining. Much of this valuable stuff eventually goes to the person who is the original Bitcoin seller. Of course, a certain amount of profit will certainly go to other members who are not the original producer of Bitcoin. Some members will also lose their valuables. As the demand for bitcoins grows, the original retailer can produce more bitcoins as central banks do. As the price of Bitcoin rises in their market, original manufacturers 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, although it does not qualify as a full-fledged currency, nor does it have legal sanctity. If Bitcoin owners set up a private court to resolve their problems arising from Bitcoin transactions, they may not worry about legal sanctity. So, it is a private virtual financial instrument for an exclusive group of people. People who have bitcoins will be able to buy huge quantities of goods and services in the public domain, which can destabilize the normal market. This will be a challenge for regulators. The failure 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 will not be able to predict the damage it may produce. Only in the last phase do we see the whole thing, when we are unable to do anything but emerge in an emergency to survive the crisis. We have been experiencing this since we started experimenting on things we wanted to have control over. In some we have succeeded, and in many we have failed, but not without casualties and losses. Shall we wait until we see the whole thing?