How Does Cryptocurrency Gain Value?
Cryptocurrencies will be the latest ‘big thing’ in the digital world and also have now been recognized as being part of the monetary system. In fact, 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, nearly all which being created via special computation techniques known 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 cryptocurrencies, aren’t reliant on the confidence and trust of the general public on the issuer. As such, several factors determine its value.
Factors that Determine the Value of Cryptocurrencies
Principles of Free Market Economy (Mainly Supply and Demand)
Supply and demand is really a major determinant of the value of anything of value, including cryptocurrencies. For the reason that if more people are willing to buy a cryptocurrency, and others are willing to sell, the price of that particular cryptocurrency will increase, and vice versa.
Mass adoption of any cryptocurrency can shoot its price to the moon. That 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 upsurge in supply will lead to a price increase of this particular commodity.
Multiple cryptocurrencies have invested more resources to make sure their mass adoption, with some focusing on the applicability of these cryptocurrency to pressing personal life issues, and crucial day-to-day cases, with the intention of making them indispensable in everyday life.
If a fiat currency, just like the USD or GBP, becomes inflated, its price rises and its purchasing power drops. This will then cause cryptocurrencies (let’s use Bitcoin for example) to increase with respect to that fiat. The result is that you will be able to acquire more of that fiat with each bitcoin. Actually, this situation has been among the major known reasons for Bitcoin’s price increase.
Scams and Cyber Attack History
Scams and hacks may also be core factors affecting the value of cryptocurrencies, because they are recognized to cause wild swings in valuations. Sometimes, the team backing a cryptocurrency may be the scammers; they’ll pump the cost of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the purchase price is shortened by the scammers, who then disappear without a trace.