Do you have some questions about bitcoin? Check out these common bitcoin questions.
Is There Any Difference Between The Central Bank Authorized Currency and Bitcoin?
Holders of the central bank authorized currency can use it for the exchange of goods and services, while the holder of bitcoins cannot tender it since it is a virtual currency that is not authorized by a central bank. This, however, does not stop the holders of bitcoin from transferring bitcoins to another account of a bitcoin holder to exchange goods and services as well as currencies authorized by central banks.
How Do You Purchase Bitcoin?
Well, someone has to sell it. Bitcoin is sold for a value and its value is decided by the bitcoin market and the sellers. If we have more buyers than sellers, the price will increase. Bitcoin is a virtual commodity. Bitcoin holders can hoard it and sell it later for a profit. If the price falls, you will lose your money the same way investors lose money in the stock market.
Another way of acquiring bitcoin is through mining. This involves the process through which transactions are verified and added to the blockchain (a public ledger). It is also the process through which new bitcoins are released.
How Liquid is Bitcoin?
The liquidity of bitcoin depends on the volume of transactions. The price of bitcoin is usually determined by free float and demand. Bitcoin is very volatile because of less free float and more demand. Its value depends on the experience of the members with bitcoin transactions.
What is The Major Problem With This Form of Transaction?
Nobody can sell bitcoin if they do not have one. This implies that you need to first acquire bitcoin by providing something valuable or by mining it. A large proportion of the valuable item goes to the original seller of bitcoin. Although, some parts of the profit will also go to other members that are not the original seller of the virtual currency.
Some members may end up losing their valuables. As the demand for bitcoins increases, the original seller of the currency can produce more the same way central banks do. As the price of the virtual currency increases, the original producers can gradually release their bitcoins into the market and make profits.
Is Bitcoin Regulated?
Bitcoin is a financial instrument but not regulated. The fact that it is a virtual financial instrument does not make it a full-fledged currency. If the holders of bitcoin create a private tribunal to settle the issues they encounter with bitcoin, they may not need to worry about legal sanctity. It is, therefore, a private virtual financial instrument for some set of people. Those with bitcoin will be able to purchase a large number of goods and services in the public domain; this can destabilize the market.
This is a challenge to regulators. If regulators fail to act, another financial crisis (just like the one that occurred during the 2007 – 2008 financial crisis) may reoccur. Although, it is not possible to predict the extent of damage that can be produced. We will only be able to see the whole event at the last stage. At this stage, we won’t be able to do anything apart from finding an emergency exit route to survive the crisis.