Should bitcoin replace the currency of central banks?

Distinction between bitcoin and central bank currency

What is the difference between an authorized central bank currency and bitcoin? The bearer of a currency authorized by the central bank can simply trade it for the exchange of goods and services. The owner of bitcoins cannot trade it because it is a virtual currency that is not authorized by the central bank. However, bitcoin holders may be able to transfer bitcoins to another account of a bitcoin member in exchange for goods and services and even currencies authorized by the central bank.

Inflation will reduce the real value of the bank currency. Short-term fluctuations in the demand and supply of bank currency in the money markets affect the change in the price of loans. However, the face value remains the same. In the case of bitcoin, its face value and real value change. We have recently witnessed the split of bitcoin. It’s like splitting stocks on the stock market. 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 with increasing demand for coins. Therefore, the accumulation of bitcoins automatically allows a person to make a profit. In addition, the original bitcoin holders will have a huge advantage over other bitcoin holders that entered the market later. In this sense, bitcoin behaves as an asset whose value increases and decreases, as evidenced by its price volatility.

When the original producers, including the 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 several people who can act as a central bank. 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 interfere in the monetary policy of central banks.

Bitcoin is highly speculative

How to buy bitcoin? Of course, someone has to sell it, sell it for a value, 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 store 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 by digging. Bitcoin mining is the process by which transactions are checked and added to the public ledger, known as the black chain, as well as the means by which new bitcoins are launched.

How liquid is bitcoin? Depends on the volume of transactions. In the stock market, the liquidity of shares depends on factors such as the value of the company, free trading, supply and demand, etc. In the case of bitcoin, free movement and demand seem to be the factors that determine its price. The high volatility of the bitcoin price is due to less free navigation and higher demand. The value of the virtual company depends on the experience of their members with bitcoin transactions. We can get helpful feedback from its members.

What could be a big problem with this transaction system? No member can sell bitcoin without one. This means that you must first acquire it by auctioning for something valuable that you own, or by digging for bitcoin. Much of this valuable stuff eventually goes to someone 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 bitcoins. Some members will also lose their values. As the demand for bitcoin increases, the original seller may produce more bitcoins, as is done by central banks. As the price of bitcoin increases in their market, start-ups can slowly put 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 meet the requirements for a full-fledged currency, nor does it have legal sanctity. If bitcoin holders set up a private tribunal to resolve their problems arising from bitcoin transactions, then they may not have to worry about legal sanctity. Thus, it is a private virtual financial instrument for an exceptional range of people. People who have bitcoins will be able to buy huge amounts of goods and services in public space, which can destabilize the normal market. This will be a challenge for regulators. The inaction of regulators could create a new financial crisis, as happened during the 2007-08 financial crisis. As usual, we cannot judge the tip of the iceberg. We will not be able to predict the damage it may cause. It is only at the last stage that we see all the work, when we are unable to do anything but an emergency exit to survive the crisis. We’ve been experiencing this since we started experimenting on things we wanted to be in control of. We succeeded in some and failed in many, but not without casualties. Do we have to wait until we see everything?