How does cryptocurrency gain value?

Cryptocurrencies are the latest “big thing” in the digital world and have now been recognized as part of the monetary system. In fact, fans have labeled it ‘the money revolution’.

In layman’s terms, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created through special computer techniques called “mining.”

The acceptance of currencies, such as the US dollar, the pound sterling and the euro, as legal tender is due to the fact that they have been issued by a central bank; However, digital currencies, like cryptocurrencies, do not depend on public trust in the issuer. As such, several factors determine its value.

Factors that determine the value of cryptocurrencies

Principles of the 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 because if more people are willing to buy a cryptocurrency and others are willing to sell, the price of that particular cryptocurrency will increase and vice versa.

mass adoption

Mass adoption of any cryptocurrency can skyrocket its price. This is because many cryptocurrencies have their supply limited to a particular limit, and according to economic principles, an increase in demand without a corresponding increase in supply will lead to an increase in the price of that particular commodity.

Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing problems in personal life, as well as crucial day-to-day cases, with the intention of making them indispensable in everyday life. .

fiat inflation

If a fiat currency, such as the USD or GBP, inflates, its price rises and its purchasing power falls. This will cause cryptocurrencies (let’s use Bitcoin as an example) to rise relative to that fiat. The result is that you will be able to acquire more of that fiat with each bitcoin. In fact, this situation has been one of the main reasons for the increase in the price of Bitcoin.

History of scams and cyberattacks

Scams and hacks are also central factors affecting the value of cryptocurrencies, as they are known to cause wild swings in valuations. In some cases, the team behind a cryptocurrency may be the scammer; They will increase the price of the cryptocurrency to attract unsuspecting people and when their hard-earned money is invested, the scammers short the price and then disappear without a trace.

Therefore, it is imperative to beware of cryptocurrency scams before investing your money.

Some other factors to consider, which have an impact on the value of cryptocurrencies, include:

• How cryptocurrency is stored, as well as its usefulness, security, ease of acquisition, and cross-border acceptability

• Strength of the community supporting the cryptocurrency (this includes funding, innovation, and the loyalty of its members)

• Low associated risks of cryptocurrency as perceived by investors and users

• news sentiment

• Market liquidity and cryptocurrency volatility

• Country regulations (this includes the ban on cryptocurrencies and ICOs in China and their acceptance as legal tender in Japan)