Cryptocurrencies are the latest ‘big thing’ in the digital world and have now been named being section of the 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, like the US Dollar, Great British Pound and the Euro, as legal tender is because they have been issued by way of a central bank; digital currencies, however, such as crypto currencies, are not reliant on the confidence and trust of the general public on the issuer. Therefore, 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 a major determinant of the worthiness of anything of value, including cryptocurrencies. This is because if more people are prepared to buy a cryptocurrency, and others are willing to sell, the price 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 specific limit and, according to economic principles, an increase popular without a corresponding upsurge in supply will lead to a price 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, along with 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 for example) to increase regarding that fiat. The result is you will be able to acquire more of that 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 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 without a trace.