How Does Cryptocurrency Gain Value?

Cryptocurrencies are the latest digital ‘big thing’ and have now been recognized as a part of the monetary system. In fact, it has been tagged by enthusiasts as ‘the money revolution’. Check This Out to learn more.

Cryptocurrencies are, in clear terms, digital decentralized assets that can be exchanged between users without the need for a central authority, most of which are created using special computing techniques called ‘mining.’

Acceptance of currencies such as the US Dollar, Great British Pound and the Euro as a legal tender is because they were issued by a central bank; however, digital currencies such as cryptocurrencies are not dependent on the public’s confidence and trust in the issuer. As such, its value is determined by several variables.

Factors Determining the Value of Cryptocurrencies Free Market Economy Principles (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 it will increase the price of that specific cryptocurrency, and vice versa.

Mass acceptance

Every cryptocurrency will fire the price to the moon. This is due to many cryptocurrencies having their supply capped at a specific limit and, according to economic principles, an increase in demand without a corresponding increase in supply will result in an increase in the price of that particular commodity.

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

Foreign Inflation

If a fiat currency, such as the USD or GBP, is high, the price rises and its buying power decreases. This will then cause an increase in cryptocurrencies (let’s use Bitcoin as an example) regarding that fiat. The effect is that through Bitcoin would cause you to accumulate more of the fiat. This condition has, in reality, been one of the big reasons for the price spike for Bitcoin.

Fraud and Cyber Threat

Background Fraud and exploits are also key influences impacting the interest of cryptocurrencies, as extreme fluctuations in valuations are known to do. For certain situations, the team who funds a cryptocurrency might be the scammers; they may manipulate the cryptocurrency price to lure naive people, so when their hard-earned money is spent, the scammers shorten the amount, and instead vanish without trace.