Question

In: Finance

Please write down your thoughts after reading the paragraphs ie. agree or disagree and why? (Min...

Please write down your thoughts after reading the paragraphs ie. agree or disagree and why? (Min 5 sentences 150 words + )

The past couple of years cryptocurrencies have been receiving a lot of attention. There are a lot of people who think that eventually cryptocurrencies will replace our current currencies and economic system, but I do not. Even though many people say that they don’t trust the government and their banks, there is a lot more trust in paper money than cryptocurrencies. The money that you have in the bank is insured by the government so if something happened to the bank you would receive your money back. If the company whose cryptocurrency you owned went out of business, would you still get your money back? Cryptocurrencies seem more like a novelty, rather than something that you would invest in and use in a transaction.

Another issue that would develop would be getting paid by your employer. If there are a bunch of different cryptocurrencies how would your employer pay you, would he have to pay you in the cryptocurrency that you want and adjust it to the value of it. The idea of these different companies having their own currency seems a lot like having a gift card. What would be the difference between having $50 in amazon currency or having a $50 amazon gift card. Even though cryptocurrencies have generated a lot of attention, there doesn't seem to be any benefit in replacing our current currency with it.     

Solutions

Expert Solution

Before we talk about advantages or disadvatages of Cryptocurrency, it is important to understand what Cryptocurrency is. Cryptocurrecy is basically a medium of exchange which is created and stored eletronically in a blockchain. These Cryptocurrencies are encrypted to control the creation of units and keep a tab on transfer of funds.

The best known example of cryptocurrency is bitcoin. At its Peak, on December 2017, the value of 1 bitcoin had reached to US$ 17,549.67, but from its peak it quickly tumbled down to US$ 6,749.27.

The major Drawback or disadvantage of investing in Cryptocurrency is the issue of cyber security. Even with the encryption, there have been instances of hacking and wiping off the currency from investor's account. As you mentioned, if at all someone thinks of replacing the normal currency with cryptocurrency, there will always be a risk of hackers getting into our accounts.

As you can see from the bitcoin example, the cryptocurrencies are very volatile and unstable. If we replace our currency with Cryptocurrency, the risk of losing its vaue is very high. in contrast the normal currency is comparatively stable , keeping intact our purchasing power.

In Short, my view is, the Cryptocurrency can be a investment for some people who understand the risk an functionalities of it. But it can not and should not replace the normal currency.


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