Question

Recently Bitcoin has risen dramatically in price. Some economists believe that Bitcoin and other digital/cryptocurrencies are merely a ‘fad’. Other economists and investors believe digital and cryptocurrencies will replace government issued currencies. Discuss digital and cryptocurrencies. What are they? Why are they becoming popular? What is causing the rapid increase in their popularity and the dramatic increase in the trading price of Bitcoin and other cryptocurrencies?

Answer 1

Digital and cryptocurrencies (like bitcoin are currencies which don't have a physical form. These currencies exist in digital mode and can be transferred across countries/boundaries without any hassles.The upward and downward movement of these currencies is influenced by various factors such as demand and supply, government policies etc. Unlike other physical commodities (like gold and silver), any individual having access to internet and mobile phone can start investment in these currencies in small amounts without any need of storing them physically.

Digital and cryptocurrencies are gaining popularity because of quick transfer of currency from one person to another without any need of going to bank or any other financial intermediary and lower transaction costs (as compared to bank and credit card charges). With expansion of digital currencies, many companies/organizations have started accepting these currencies as a payment method for buying goods/services. Further, dealing in digital currencies involves lesser risk as compared to use of online banking and credit card for making payments, thereby, reducing the possibility of identity theft. Sharp movements in the prices of digital and cryptocurrencies have also attracted many people to buy these currencies in order to earn profits (from trading). Because of these factors, the demand for digital and cryptocurrencies is on a constant increase and with limited supply (or supply on an irregular basis), the price of these currencies is rising rapidly.