Should Bitcoin Replace Currency of Central Banks?

 Distinction between Bitcoin and Currency of Central Banks

What is the difference between central bank authorized currency and Bitcoin? The bearer of central bank authorized currency can merely tender it for exchange of goods and services. The holder of Bitcoins cannot tender it because it's a virtual currency not authorized by a central bank. However, Bitcoin holders may be able to transfer Bitcoins to another account of a Bitcoin member in exchange of goods and services and even central bank authorized currencies.


Inflation will bring down the real value of bank currency. Short term fluctuation in demand and supply of bank currency in money markets effects change in borrowing cost. However, the face value remains the same. In case of Bitcoin, its face value and real value both changes. We have recently witnessed the split of Bitcoin. This is something like split of share in the stock market. Companies sometimes split a stock into two or five or ten depending upon the 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 demand for the coins increases. Consequently, hoarding of Bitcoins automatically enables a person to make a profit. Besides, the initial holders of Bitcoins will have a huge advantage over other Bitcoin holders who entered the market later. In that sense, Bitcoin behaves like an asset whose value increases and decreases as is evidenced by its price volatility.

When the original producers including the miners sell Bitcoin to the public, money supply is reduced in the market. However, this money is not going to the central banks. Instead, it goes to a few 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 as the total value of Bitcoins increases, the Bitcoin system will have the strength to interfere with central banks' monetary policy.