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Cryptocurrencies are the newest “big thing” in the digital world and have now been recognized as part of the monetary system. In fact, enthusiasts have referred to it as “the revolution of money”.

Cryptocurrencies are clearly decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created by special computing techniques known as “mining”.

The legal tender of currencies such as the US dollar, the British pound and the euro is because they were issued by a central bank; However, digital currencies such as cryptocurrencies do not rely on the public’s trust in the issuer. Hence, several factors determine its value.

Factors that determine the value of cryptocurrencies

Free market principles (mainly supply and demand)

Supply and demand are an important determinant of the value of any item of value, including cryptocurrencies. This is because the price of that particular cryptocurrency will go up as more people are willing to buy one cryptocurrency and sell others, and vice versa.

Mass adoption

The mass adoption of any cryptocurrency can skyrocket its price. This is because the supply of many cryptocurrencies is limited to a certain limit and, according to economic principles, an increase in demand without a corresponding increase in supply leads to an increase in the price of this particular commodity.

Several cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to urgent problems of personal life as well as critical everyday cases to make them indispensable in everyday life.

Fiat inflation

When a fiat currency such as the USD or GBP is inflated, its price increases and its purchasing power decreases. This will then cause cryptocurrencies (let’s take Bitcoin as an example) to rise in relation to that fiat. The result is that you can get more of that fiat with every bitcoin. In fact, this situation was one of the main reasons why Bitcoin went up in price.

Fraud and Cyber ​​Attack History

Scams and hacks are also central factors influencing the value of cryptocurrencies, as they are known to cause sharp fluctuations in valuations. In some cases, the team that supports a cryptocurrency may be the scammers; They will pump the price of the cryptocurrency to attract unsuspecting people and when their hard earned money is invested the price will be cut by the scammers who will then disappear without a trace.

It is therefore imperative to beware of cryptocurrency scams before investing your money.

Some other factors to consider that affect the value of cryptocurrencies are:

• The way in which the cryptocurrency is stored, as well as its usefulness, security, ease of acquisition and cross-border acceptance

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

• Low cryptocurrency related risks as perceived by investors and users

• News mood

• Market liquidity and volatility of the cryptocurrency

• Country regulations (including the ban on cryptocurrency and ICOs in China and their recognition as legal tender in Japan)

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Source by Anthony Stark