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 might 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, just 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, aren’t reliant on the confidence and trust of the general public on the issuer. Therefore, several factors determine its value.
Factors that Determine the Value of Cryptocurrencies
Principles of Free Market Economy (Mainly Supply and Demand)
Supply and demand is really a major determinant of the value of anything of value, including cryptocurrencies. This is due to if more people are willing to buy a cryptocurrency, among others are willing to sell, the price of that particular cryptocurrency increase, and vice versa.
Mass adoption of any cryptocurrency can shoot its price to the moon. That is due to many cryptocurrencies having their supply capped at a particular limit and, according to economic principles, an increase popular without a corresponding increase in supply will lead to a cost increase 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 issues, in addition to crucial day-to-day cases, with the intention of earning them indispensable in everyday activity.
If a fiat currency, like the USD or GBP, becomes inflated, its price rises and its own purchasing power drops. This can then cause cryptocurrencies (let’s use Bitcoin for example) to increase with respect to that fiat. The result is that you will be able to acquire more of this fiat with each bitcoin. In Tipping Token , 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, as they are recognized to cause wild swings in valuations. Sometimes, the team backing a cryptocurrency could 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.