Cryptocurrencies are the latest ‘big thing’ in the digital world and have now been acknowledged as being part of the monetary system. In reality, fans have tagged it as ‘the revolution of money’.
In clear terms, cryptocurrencies are decentralized digital assets that may be exchanged between users without the need for a central creatority, the mainity of which being created through special computation techniques referred to as ‘mining’.
The acceptance of currencies, like the US Dollar, Great British Pound and the Euro, as authorized tender is because they’ve been issued by a central bank; digital currencies, nevertheless, reminiscent of cryptocurrencies, aren’t reliant on the arrogance and trust of the general public on the issuer. As such, several factors decide its value.
Factors that Determine the Value of Cryptocurrencies
Rules of Free Market Economy (Primarily Supply and Demand)
Supply and demand is a significant determinant of the value of anything of worth, including cryptocurrencies. This is because if more people are willing to buy 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 provide capped at a particular limit and, in response to economic rules, an increase in demand without a corresponding increase in supply will lead to a value increase 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 everyday life.
If a fiat currency, like the USD or GBP, becomes inflated, its price rises and its buying power drops. This will then cause cryptocurrencies (let’s use Bitcoin as an example) to extend with respect to that fiat. The result’s that you will be able to accumulate more of that fiat with each bitcoin. In actual fact, this situation has been one of many main reasons for Bitcoin’s value increase.
Scams and Cyber Attack History
Scams and hacks are additionally core factors affecting the value of cryptocurrencies, as they are known to cause wild swings in valuations. In some cases, the team backing a cryptocurrency often is the scammers; they will pump the price of the cryptocurrency to draw unsuspecting people and when their hard-earned money is invested, the value is shortened by the scammers, who then disappear without a trace.
It’s therefore imperative to be careful of cryptocurrency scams before investing your money.
Some other factors to consider, that have an impact on the worth of cryptocurrencies, include:
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 related risks of the cryptocurrency as perceived by traders and users
Market liquidity and volatility of the cryptocurrency
Country laws (this includes the ban of cryptocurrency and ICOs in China and its acceptance as authorized tender in Japan)
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