Cryptocurrencies will be the latest ‘big thing’ in the digital world and also have now been named being area of the monetary system. In fact, enthusiasts have tagged it as ‘the revolution of money’.
In clear terms, cryptocurrencies are decentralized digital assets which can be exchanged between users without the need for a central authority, the majority of which being created via special computation techniques referred to as ‘ mining ‘.
The acceptance of currencies, 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 cryptocurrencies, are not reliant on the confidence and trust of the public on the issuer. As such, 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 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 cost of that particular cryptocurrency will increase, and vice versa.
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, in accordance with economic principles, an increase in demand 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 focusing on the applicability of their cryptocurrency to pressing personal life issues, and crucial day-to-day cases, with the intention of earning them indispensable in everyday life.
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 as an example) to increase with respect to that fiat. The effect is that you will be able to acquire more of this fiat with each bitcoin. In fact, 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 value of cryptocurrencies, because they are recognized 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.