How Does Cryptocurrency Gain Value?
Cryptocurrencies will be the latest ‘big thing’ in the digital world and have now been named being portion of the monetary system. Actually, enthusiasts have tagged it as ‘the revolution of money’.
In clear terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, the majority of which being created via special computation techniques referred to as ‘mining’.
The acceptance of currencies, like the US Dollar, Great British Pound and the Euro, as legal tender is because they have been issued by a central bank; digital currencies, however, such as for example cryptocurrencies, are not reliant on the confidence and trust of the general public on the issuer. As such, several factors determine its value.
Factors that Determine the worthiness of Cryptocurrencies
Principles of Free Market Economy (Mainly Supply and Demand)
Supply and demand is a major determinant of the worthiness of anything of value, including cryptocurrencies. equipment is because if more people are prepared to buy a cryptocurrency, among others are willing to sell, the price of that particular cryptocurrency increase, and vice versa.
Mass adoption of any cryptocurrency can shoot its price to the moon. This is due to many cryptocurrencies having their supply capped at a particular limit and, according to economic principles, an increase in demand without a corresponding increase in supply will lead to a price increase of this particular commodity.
Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing personal life issues, as well as crucial day-to-day cases, with the intention of earning them indispensable in everyday activity.
If a fiat currency, just like the USD or GBP, becomes inflated, its price rises and its purchasing power drops. This can then cause cryptocurrencies (let’s use Bitcoin for example) to increase with respect to that fiat. The effect is you will be able to acquire more of this fiat with each bitcoin. In fact, this situation has been among the major reasons for Bitcoin’s price increase.
Scams and Cyber Attack History
Scams and hacks are also core factors affecting the worthiness of cryptocurrencies, because they are recognized to cause wild swings in valuations. Sometimes, the team backing a cryptocurrency could be the scammers; they’ll pump the cost of the cryptocurrency to attract unsuspecting individuals so when their hard-earned money is invested, the purchase price is shortened by the scammers, who then disappear without a trace.