Cryptocurrencies are the latest ‘big thing’ in the digital world and have now been named being portion of the monetary system. In fact, enthusiasts 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 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 cryptocurrencies, aren’t reliant on the confidence and trust of the general 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 worthiness of anything of value, including cryptocurrencies. The reason being if more people are willing to buy a cryptocurrency, among others are willing to sell, the price of that particular cryptocurrency increase, and vice versa.
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, in accordance with economic principles, an increase popular without a corresponding upsurge in supply will lead to a cost increase of that particular commodity.
Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some concentrating on the applicability of these cryptocurrency to pressing personal life issues, in addition to crucial day-to-day cases, with the intention of earning them indispensable in everyday life.
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 as an example) to increase with respect to that fiat. The result is you will be able to acquire more of this fiat with each bitcoin. Actually, this situation has been among the major reasons for Bitcoin’s price increase.
Scams and Cyber Attack History
Scams and hacks may also be core factors affecting the worthiness 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 and when their hard-earned money is invested, the purchase price is shortened by the scammers, who then disappear without a trace.