Cryptocurrencies will be the latest ‘big thing’ in the digital world and 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 which can be exchanged between users with no need for a central authority, nearly all which being created via special computation techniques referred to as ‘mining’.
The acceptance of currencies, just like the US Dollar, Great British Pound and the Euro, as legal tender is because they have been issued by way of 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 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. It is because if more people are prepared to buy a cryptocurrency, among others are willing to sell, the price of that particular cryptocurrency will increase, and vice versa.
Mass Adoption
Mass adoption of any cryptocurrency can shoot its price to the moon. This is because of many cryptocurrencies having their supply capped at a particular limit and, according to economic principles, an increase popular without a corresponding upsurge in supply will lead to a cost 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, along with crucial day-to-day cases, with the intention of making them indispensable in everyday activity.
Fiat Inflation
If a fiat currency, just like the USD or GBP, becomes inflated, its price rises and its own purchasing power drops. This can then cause cryptocurrencies (let’s use Bitcoin for example) to increase regarding that fiat. The result is you will be able to acquire more of this fiat with each bitcoin. In fact, this situation has been one of the major known reasons for Bitcoin’s price increase.
Tipping Token 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. In some instances, the team backing a cryptocurrency may be the scammers; they’ll pump the cost of the cryptocurrency to attract unsuspecting individuals so when their hard-earned money is invested, the price is shortened by the scammers, who then disappear without a trace.