Cryptocurrencies are the latest 'big thing' within the digital world and have now been acknowledged as being part of the monetary system. In actual fact, fanatics have tagged it as 'the revolution of money'.
In clear phrases, cryptocurrencies are decentralized digital assets that may be exchanged between customers without the necessity for a central authority, the foremostity of which being created through special computation strategies referred to as 'mining'.
The acceptance of currencies, like the US Dollar, Nice British Pound and the Euro, as legal tender is because they've been issued by a central bank; digital currencies, however, equivalent to cryptocurrencies, aren't reliant on the confidence and trust of the public on the issuer. As such, several factors decide its value.
Factors that Determine the Value of Cryptocurrencies
Principles of Free Market Economy (Mainly Supply and Demand)
Supply and demand is a significant determinant of the value of anything of value, including cryptocurrencies. This is because if more individuals are willing to buy a cryptocurrency, and others are willing to sell, the value of that particular cryptocurrency will improve, and vice versa.
Mass adoption of any cryptocurrency can shoot its worth to the moon. This is due to many cryptocurrencies having their supply capped at a particular limit and, in line with financial principles, an increase in demand without a corresponding increase in supply will lead to a price enhance of that particular commodity.
Multiple cryptocurrencies have invested more resources to make sure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing personal life points, as well as crucial day-to-day cases, with the intention of making them indispensable in everyday life.
If a fiat currency, like the USD or GBP, becomes inflated, its price rises and its buying energy drops. This will then cause cryptocurrencies (let's use Bitcoin for instance) to increase with respect to that fiat. The result is that you just will be able to acquire more of that fiat with each bitcoin. Actually, this situation has been one of the major reasons for Bitcoin's value increase.
Scams and Cyber Attack History
Scams and hacks are additionally core factors affecting the value of cryptocurrencies, as they are known to cause wild swings in valuations. In some cases, the staff backing a cryptocurrency will be the scammers; they will pump the value 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 without a trace.
It is due to this fact imperative to be careful of cryptocurrency scams before investing your money.
Some other factors to consider, which have an impact on the value of cryptocurrencies, embody:
Manner in which the cryptocurrency is stored, as well as its utility, security, ease of acquisition and cross-border acceptability
Strength of the community backing the cryptocurrency (this contains funding, innovation and the loyalty of its members)
Low related risks of the cryptocurrency as perceived by traders and customers
Market liquidity and volatility of the cryptocurrency
Country rules (this includes the ban of cryptocurrency and ICOs in China and its acceptance as authorized tender in Japan)