Cryptocurrency is the latest ‘big thing’ in the digital world and is now recognized as part of the financial system. In fact, enthusiasts have tagged it as a ‘money revolution’.
Clearly, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for any central authority, most of which were created through a special calculation method called ‘mining’.
Currencies such as the US dollar, the Great British pound, and the euro are accepted as legal tender because they are issued by the central bank; Digital currencies, such as cryptocurrencies, do not depend on the public’s trust and confidence in the issuer. As such, several elements determine its value.
The elements that determine the value of cryptocurrency
Principles of free market economy (mainly supply and demand)
Supply and demand determine the value of anything of value, including cryptocurrency. This is because if more people are willing to buy a cryptocurrency and others are willing to sell, the price of that particular cryptocurrency will increase and vice versa.
The widespread use of any cryptocurrency can determine its value to the moon. This is due to the fact that many cryptocurrencies keep their supply within a certain range and according to economic policy, the price of that particular product will increase due to the increase in demand without a relative increase in supply.
Multiple cryptocurrencies have invested more resources to ensure their public acceptance, with some highlighting the applicability of their cryptocurrencies to suppress their personal life issues, as well as to make important daily issues essential to their daily lives.
If a Fiat currency, such as the USD or GBP, inflates, its price rises and purchasing power decreases. This will then create cryptocurrencies (use Bitcoin for example) with respect to Fiat. The result is that you will be able to earn more Fiat with every bitcoin. In fact, this situation has become one of the main reasons for the rise in the price of Bitcoin.
History of scams and cyber attacks
Scams and hacks are also key factors that affect the quality of cryptocurrencies, as they are known to cause wild fluctuations in valuation. In some cases, a group supporting a cryptocurrency can be a scammer; They will pump up the price of cryptocurrency to attract suspects and when their hard earned money is invested, the price is shortened by scammers, who disappear without a trace.
So it is important to be aware of cryptocurrency scams before investing your money.
Some other factors that affect the value of cryptocurrency need to be considered, including:
The way cryptocurrency is stored, its usefulness, security, ease of acquisition and cross-border acceptability
Community strengths supporting cryptocurrency (including financing, innovation and loyalty of its members)
Less related risk of cryptocurrency as available by investors and users
Market liquidity and cryptocurrency volatility
Country regulations (including the prohibition of cryptocurrency and ICO in China and its recognition as a legal tender in Japan)