Write 1-3 paragraphs that explain the following: What are digital or crypto-curr

ID: 2795701 • Letter: W

Question

Write 1-3 paragraphs that explain the following:

What are digital or crypto-currencies? Note this assignment is not about electronic currencies, but digital or crypto currencies which are not currencies established by federal governments.

Why did they come about?

How do they work specifically?

Who uses them?

Part 2 (10 points)

Write 1-3 paragraphs that explain the following about digital currencies with respect to currencies issued by national governments:

How do they affect existing currencies from a monetary policy perspective of nations?

How do they change the demand curve for existing currencies?

Your assignment should use formal citation format and show good paragraph construction for full credit.

Explanation / Answer

What are digital or crypto-currencies?

The crypto-currencies are digital currencies. As these currencies are virtual in nature hence they are transacted in secured form. To ensure the security of transactions it optimizes the use of cryptography technology. Cryptography features the high security of the transactions hence it earns the faith of investors. Crypto-currencies are not backed by any sovereign nation or state. All cryptocurrencies must have upper limit of issuance so that supply of the currency can be restricted.

Why did they come about?

Bitcoin is first successful cryptocurrency. It was designed and launched by an anonymous person which is known by name of Satoshi Nakamoto (Untraced personality, name of launcher is also doubtful).

Satoshi is believed to be criticizer of fractional-reserve banking system and he wrote observations on it. However, it is believed fact that sovereigns can manipulate flow of currencies in name of “quantitative easing” or “lender of last resort” to save shrinking economy and this was empirical during the crisis (Subprime crisis 2009).

Satoshi, felt strong requirement of independent currency in the market and hence he launched Bitcoin. However, few people prior to Satoshi Nakamoto have tried to do something like of Bitcoin but failed.

How do they work specifically?

They work based on publicly available ledger which contains all transactions historically. The transactions are encoded and decoded with help of the cryptography. It uses the block chain technology to confirm the transactions. The confirmers of these transactions are called miners, who keep on mining and bring new flow of currencies in system. The get incentivized by system itself, system based on mathematics assigns incentives to these miners. With passage of time the mining will yields lower incentives for the miners. This happens because the currencies are limited.

Who uses them?

Cryptocurrencies are used by people who have high faith on decentralized power of currency. Basically, till date many people who have cryptocurrencies they hold it for appreciation. Cryptocurrencies are barely used for settlement of commercial transactions due jurisdictions and less awareness in market.

How do they affect existing currencies from a monetary policy perspective of nations?

Till date significance of cryptocurrencies have not touched the level that can influence the various nations and jurisdictions.

However, cryptocurrencies are posing great threat to centralized currency as faith of people on decentralized currencies seems to be increasing. As people gain more understanding on cryptocurrency’s decentralized power versus weakness of centralized currencies they will chose better preference.

How do they change the demand curve for existing currencies?

Demand for cryptocurrency have gone up in recent past and many cryptocurrencies are experiencing more than 100% growth in recent quarters.

For an example, Bitcoin has crossed the $ 10,000 /- mark recently (One bitcoin > $ 10,000)

This shows the demand preference for holding cryptocurrencies over sovereign issued currencies.

Let’s check the top seven listed crypto currencies:

Name

Symbol

Market Cap

Price

Circulating Supply

Volume (24h)

Bitcoin

BTC

$188,219,994,725

$11,259.50

16,716,550

$4,847,310,000

Ethereum

ETH

$45,321,379,712

$471.59

96,103,148

$800,875,000

Bitcoin Cash

BCH

$26,759,540,997

$1,589.49

16,835,300

$1,056,610,000

Ripple

XRP

$9,908,427,044

$0.26

38,622,870,411 *

$95,619,300

Dash

DASH

$6,024,834,746

$779.91

7,724,989

$162,599,000

Litecoin

LTC

$5,438,896,174

$100.53

54,102,758

$302,489,000

Bitcoin Gold

BTG

$5,075,170,445

$304.17

16,685,474

$90,397,800

*** Source: https://coinmarketcap.com/all/views/all/

We can conclude the gaining importance of cryptocurrencies based on increasing demand. However, we cannot conclude it as final success. Investment world is still taking cognizance of its journey and coming future of crypto currency world.

Few demerits of crypto-currencies: