Cryptocurrencies are the latest ‘big thing’ in the digital world and also 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 with no need for a central authority, the majority of which being created via special computation techniques known as ‘mining’.
hardware of currencies, like the US Dollar, Great British Pound and the Euro, as legal tender is basically 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. As such, 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. This is due to 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 because of many cryptocurrencies having their supply capped at a specific limit and, according to 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 make sure their mass adoption, with some focusing on the applicability of these cryptocurrency to pressing personal life issues, in addition to crucial day-to-day cases, with the intention of making 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 will then cause cryptocurrencies (let’s use Bitcoin for example) to increase with respect to that fiat. The effect is you will be able to acquire more of that fiat with each bitcoin. Actually, this situation has been among 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 price of the cryptocurrency to attract unsuspecting individuals so when their hard-earned money is invested, the purchase price is shortened by the scammers, who then disappear with out a trace.