Cryptocurrencies are the latest ‘big thing’ in the digital world and also 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 basically because they have been issued by way of 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 Value of Cryptocurrencies
Principles of Free Market Economy (Mainly Supply and Demand)
Supply and demand is a major determinant of the value of anything of value, including cryptocurrencies. It is because if more people are prepared to buy a cryptocurrency, and others are willing to sell, the cost of that particular cryptocurrency increase, 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 accordance with economic principles, an increase popular without a corresponding upsurge in supply will lead to a price increase of this particular commodity.
Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some concentrating on the applicability of their cryptocurrency to pressing personal life issues, and also crucial day-to-day cases, with the intention of earning them indispensable in everyday activity.
If a fiat currency, like the USD or GBP, becomes inflated, its price rises and its 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 that fiat with each bitcoin. In fact, this situation has been one of the major 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, Spice backing a cryptocurrency could 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 with out a trace.