Cryptocurrencies are the latest ‘big thing’ in the digital world and have now been acknowledged as being part of the monetary system. The truth is, fans have tagged it as ‘the revolution of money’.
In clear terms, cryptocurrencies are decentralized digital assets that may be exchanged between customers without the need for a central writerity, the foremostity of which being created by way of special computation methods referred to as ‘mining’.
The acceptance of currencies, like the US Dollar, Nice British Pound and the Euro, as legal tender is because they have been issued by a central bank; digital currencies, nevertheless, resembling cryptocurrencies, aren’t reliant on the boldness and trust of the public on the issuer. As such, several factors decide its value.
Factors that Decide the Value of Cryptocurrencies
Principles of Free Market Economy (Mainly Supply and Demand)
Supply and demand is a serious determinant of the value of anything of value, including cryptocurrencies. This is because if more people are willing to purchase a cryptocurrency, and others are willing to sell, the value of that particular cryptocurrency will enhance, 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, in keeping with economic principles, an increase in demand without a corresponding increase in supply will lead to a worth enhance of that 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 making them indispensable in on a regular basis life.
If a fiat currency, like the USD or GBP, becomes inflated, its worth 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 simply will be able to amass more of that fiat with every bitcoin. The truth is, this situation has been one of many main reasons for Bitcoin’s worth increase.
Scams and Cyber Attack History
Scams and hacks are also core factors affecting the worth of cryptocurrencies, as they’re known to cause wild swings in valuations. In some cases, the crew backing a cryptocurrency may be the scammers; they’re going to pump the worth of the cryptocurrency to attract unsuspecting people and when their hard-earned cash is invested, the value is shortened by the scammers, who then disappear without a trace.
It’s due to this fact crucial to be careful of cryptocurrency scams earlier than investing your money.
Some other factors to consider, that have an impact on the value of cryptocurrencies, embody:
Method in which the cryptocurrency is stored, as well as its utility, security, ease of acquisition and cross-border acceptability
Energy of the community backing the cryptocurrency (this includes funding, innovation and the loyalty of its members)
Low associated risks of the cryptocurrency as perceived by buyers and customers
Market liquidity and volatility of the cryptocurrency
Country laws (this consists of the ban of cryptocurrency and ICOs in China and its acceptance as legal tender in Japan)