Essay 1. Cryptocurrency. Mathematics & Economics Essay
Reading Materials
1. “Application: Will Bitcoin Become the Money of the Future” on page 55 in the textbook. 2. “Is Bitcoin a Real Currency? An Economic Appraisal”. On Blackboard. 3. “Cryptocurrency: The Economics of Money and Selected Policy Issues”. On Blackboard.
Writing Instruction
• After reading the materials, answer briefly the following questions: o What is cryptocurrency? What is its main differences with fiat money? o Do you think any cryptocurrency like Bitcoins can serve as money and even replace the current fiat money system? Hint: you should answer from the three functions of money. o Try to collect as much information as you can about the new cryptocurrency Libra created by Facebook. What is its differences with Bitcoins? Which one do you think is more promising to be accepted as money by the public?
• You can have the same points and arguments as in the readings, but you should NOT copy or quote the original texts. Try to explain with your own words.
• You are encouraged to use the most recent data and figures to support your points if you think the data is too old in the materials, but make sure to cite the sources properly.
• Do NOT commit plagiarism!
• The essay should be written in a Word file with 1-2 pages (2 pages at most), 12-point Times New Roman font, single-line spacing, justified text alignment, and normal margins. Failure to follow these rules will impact your score.
• Submit by Friday February 28, 11:59EDT onto Blackboard.
Professor’s Name
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Date
Cryptocurrency
Cryptocurrencies refer to digital currencies that use cryptographical functions in conducting financial transactions. The blockchain technology enables them to gain immutability, decentralization, and transparency. In particular, a cryptocurrency is immune to control by central authorities, banks, and government interference. Currently, despite many people knowing about the existence of cryptocurrencies, only a few individuals use it to transact. Banks do not accept deposits from these currencies due to their high risk and security-related problems. Cryptocurrencies, such as Ethereum and Bitcoin, use peer-to-peer technology in facilitating web-based payments.
Cryptocurrencies are different from fiat money. Specifically, fiat money is currencies that are issued and regulated by the government through the central bank. On the contrary, cryptocurrencies are not controlled by the bank, and they are decentralized. An algorithm is the one that controls the supply and demand. The government does not allow people to pay taxes with it. Fiat currencies, such as dollars and euros, can be printed and used in their physical form to purchase goods and services. Cryptocurrencies are virtual or digital money that is not tangible. Individuals can only use them to buy products on the Internet. Moreover, fiat currencies have an unlimited supply, and the central bank comes up with policies to regulate their circulation (Yermack 9). When it comes to cryptocurrencies, they have a limit of the money that will be in supply in a specific period. Fiat money can be stored in banks while cryptocurrencies are kept in digital wallets, which are vulnerable to hacking.
Cryptocurrencies, such as Bitcoins, can serve as money, but they cannot replace the current fiat money system. They can only replace fiat currencies if they can play the three primary functions or roles of money, namely the unit of exchange, store of value,...
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