How Does Cryptocurrency Gain Value?

Cryptocurrencies are the latest ‘big thing’ in the digital world and have now been recognized as being the main 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 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 a central bank; digital currencies, however, such as for example cryptocurrencies, aren’t reliant on the confidence and trust of the public on the issuer. Therefore, 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 really a major determinant of the value of anything of value, including cryptocurrencies. It is because if more people are willing to buy a cryptocurrency, and others are willing to sell, the price of that particular cryptocurrency increase, and vice versa.

Mass Adoption

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 that particular commodity.

Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of these cryptocurrency to pressing personal life issues, as well as crucial day-to-day cases, with the intention of making them indispensable in everyday life.

Fiat Inflation

If a fiat currency, just like the USD or GBP, becomes inflated, its price rises and its own purchasing power drops. This will then cause cryptocurrencies (let’s use Bitcoin for example) to increase with respect to that fiat. The effect is that you will be able to acquire more of that fiat with each bitcoin. Actually, hardware has been one of 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 known to cause wild swings in valuations. Occasionally, 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 with out a trace.

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