Cryptocurrencies will be the latest ‘big thing’ in the digital world and have now been recognized as being part of the monetary system. Actually, enthusiasts have tagged it as ‘the revolution of money’.
In clear terms, cryptocurrencies are decentralized digital assets which might be exchanged between users without the need for a central authority, the majority of which being created via special computation techniques known as ‘mining’.
Spice Token of currencies, 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, are not 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 worthiness of anything of value, including cryptocurrencies. Simply because 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
Mass adoption of any cryptocurrency can shoot its price to the moon. That is because of many cryptocurrencies having their supply capped at a particular limit and, according to economic principles, an increase popular without a corresponding upsurge in supply will lead to a cost increase of this 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, and also crucial day-to-day cases, with the intention of earning them indispensable in everyday life.
Fiat Inflation
If a fiat currency, just 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 that you will be able to acquire more of this fiat with each bitcoin. In fact, this situation has been among the major known reasons for Bitcoin’s price increase.
Scams and Cyber Attack History
Scams and hacks are also core factors affecting the worthiness of cryptocurrencies, as they are recognized to cause wild swings in valuations. In some cases, the team backing a cryptocurrency may be the scammers; they’ll pump the price of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the price is shortened by the scammers, who then disappear with out a trace.