How do cryptocurrencies gain value?

Encrypted currency is the latest “big event” in the digital world and is now recognized as a part of the currency system. In fact, zealots label it the “currency revolution.”

To be clear, cryptocurrencies are decentralized digital assets that can be exchanged between users without a central authority, most of which are created through a special computing technique called “mining”.

The acceptance of currencies such as the U.S. dollar, pound sterling, and euro as legal tender is because they are issued by the central bank; however, digital currencies, such as encrypted currencies, do not rely on the public’s confidence and trust in 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 are the main determinants 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, then the price of a particular cryptocurrency will go up, and vice versa.

mass adoption

The mass adoption of any cryptocurrency can push its price to the moon. This is because the supply of many cryptocurrencies has a specific 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.

Many cryptocurrencies have invested more resources to ensure their mass adoption, some of which focus on the applicability of their cryptocurrencies in pressing personal life issues and key everyday cases, with the aim of making them indispensable in daily life.

Fiat inflation

If fiat currencies (such as the U.S. dollar or pound sterling) expand, their prices will rise and their purchasing power will fall. This will result in an increase in cryptocurrency (we use Bitcoin as an example) relative to that fiat currency. As a result, you will be able to use each bitcoin to get more fiat currencies. In fact, this situation has always been one of the main reasons for the rise in the price of Bitcoin.

History of scams and cyber attacks

Scams and hacking are also core factors affecting the value of cryptocurrencies, as they are known to cause large fluctuations in valuations. In some cases, the teams that support cryptocurrencies may be scammers; they will increase the price of cryptocurrencies to attract unsuspecting individuals. When their hard-earned money is invested, the scammers will shorten the price, and then the scammers will disappear. disappeared.

Therefore, one must be careful about cryptocurrency scams before investing.

Some other factors that affect the value of cryptocurrencies include:

  • The storage method of cryptocurrency, as well as its practicality, security, easy access and cross-border acceptability

  • The strength of the community that supports cryptocurrency (including funding, innovation, and member loyalty)

  • Investors and users see lower risks associated with cryptocurrencies

  • news sentiment

  • Market Liquidity and Volatility of Cryptocurrencies

  • National regulations (this includes the prohibition of cryptocurrencies and ICOs in China and their acceptance as legal tender in Japan)