Question

Dear Students,

Read about Crypto currencies and answer the given question.

“Recently, cryptocurrencies and bitcoin have become the main topics in the financial industry. A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Cryptocurrencies have their benefits and drawbacks. It is not easy to predict the future of cryptocurrencies, since there is a lot to be done especially in the field of formal regulations. However, the banks and other financial institutions should see and consider cryptocurrencies as an alternative for the financial transactions in the future”.

Questions

1.     Explain early development, challenges and risks, opportunities, advantages and disadvantages, and the future of Crypto Currencies.

2.     What is Bitcoin and how does crypto currencies (bitcoin) work? Do you think this is an alternative for Currency in circulation?

3.     What are the biggest determinants of crypto currency prices?

4.     How does the aggregate demand and supply of crypto currency affect the Economy?

Answer 1

Hi,

Hope you are doing well!

Question:

Answer:

1). Answer:

It was first outlined in a 2008 white paper published by Satoshi Nakamoto, a pseudonymous person or group. In early 2009, Nakamoto released Bitcoin to the public, and a group of enthusiastic supporters began exchanging and mining the currency. Now it has became very popular globally and number of bodies and individuals are involving in crypto currency trading worldwide. Numbers of bodies are accepting it as a currency and using it.

But there are many challenges for the crypto currency. The biggest challenges is that it is not a legal tender and there is no any authentic and reliable legal regulators. Its in only available in digital form not in other forms so, it makes it difficult in common transaction during buying or selling the goods and services. Many countries have banned on cryptocurrency.

There are many advantages of crypto currency. It is in digital form so, its make the transactions easy. Otherside it is very safe and secure. Crypto currency is difficult to counterfeit because of this security feature. It also helps in cost saving beacuse there is no need of third parties during the transactions.

There are some disadvantages of cryptocurrency. Its is not a legal tender and not regulated by any government bodies. it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Lack of transparency is make easy to use for illegal activities. It is available only in digital form so, it makes difficult for the user. It is very fluctuate in nature.

Its has many benefits and drawback so, the future of crypto currency is not clear. Since there is a lot to be done especially in the field of formal regulations. However, the banks and other financial institutions should see and consider crypto currencies as an alternative for the financial transactions in the future.

2). Answer:

Crypto currency: A crypto currency is a digital or virtual currency that uses cryptography for security. A crypto currency is difficult to counterfeit because of this security feature.

It is a digital form of currency so, it works  based on a network that is distributed across a large number of computers and use of  encryption techniques which are used to secure the network.

This is digital or virtual currency that uses cryptography for security. A crypto currency is difficult to counterfeit because of this security feature. A defining feature of a crypto currency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. So, its not a legal tender and not accepted by globally. There is a lot to be done especially in the field of formal regulations. However, the banks and other financial institutions should see and consider crypto currencies as an alternative for the financial transactions in the future. So, i think it is NOT an alternative for Currency in circulation.

3). Answer:

Biggest determinants of crypto currency prices is demand and supply. The demand and supply is based on many things like, costing, exchange rate laws, government policy etc. Its trader is speculator in nature and trade it for profit making, It is not traded like other securities.

4). Answer:

Aggregate demand is the total demand of goods and services during a specific period at different price level and aggregate supply is the total supply of goods and services available to a particular market from producers at the specific price. AD is affected by the consumption, government spending, investment and net export and other side AS is affected by labor cost, input cost, supply of raw materials and other inputs etc. When AD increase more then its increase the total output or GDP. It also increase the price level or inflation and higher the inflation level creates the job opportunities and reduce unemployment level ( as per the Phillips Curve Theory)

Aggregate demand and supply of crypto currency do not affect the Economy because its is not a legal tender and NOT taken in use by the consumers. Its supply does not affected by the central bank monetary policy. So, its does not affect AD-AS so, its does not affect the economy till now.

Thank You