How does cryptocurrency gain value?

Cryptocurrencies are the latest “big thing” in the digital world and have now been recognized as part of the monetary system. In fact, fans have labeled it a “money revolution”.

In short, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created through special computing techniques called “mining”.

Accepting currencies as the legal value of currencies such as the US dollar, the British pound and the euro is issued by a central bank; digital currencies, however, such as cryptocurrencies, are not in the public’s trust and confidence in the issuer. Therefore, several factors determine its value.

Factors that determine the value of cryptocurrencies

Principles of a free market economy (mainly supply and demand)

Supply and demand is the main determinant of the value of anything worthwhile, including cryptocurrencies. That is, if more people are willing to buy one cryptocurrency and others are willing to sell it, the price of that particular cryptocurrency will go up, and vice versa.

Mass Adoption

Massively adopting any cryptocurrency can throw its price to the moon. This is because many cryptocurrencies are limited by a certain supply limit and, according to economic principles, an increase in demand will lead to an increase in the price of that particular commodity without a corresponding increase in supply.

Many cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrencies to serious problems in their personal lives, as well as in crucial day-to-day cases, with the aim of making them essential in everyday life.

Fiat Inflation

If a Fiat currency, such as USD or GBP, inflates, its price rises and its purchasing power falls. This, in turn, will result in an increase in cryptocurrency (let’s use Bitcoin as an example) in this fiat. As a result, with each bitcoin you can get more of that fiat. In fact, this situation has been one of the main reasons for the rise in the price of Bitcoin.

Fraud and the History of Cyberattacks

Fraud and hacking are also the main factors that affect the value of cryptocurrencies, as they cause wild changes in valuations. In some cases, the group that protects the cryptocurrency may be fraudsters; they will pump the price of the cryptocurrency to attract unexpected people, and when they invest hard-earned money, the scammers shorten the price, and then disappear without a trace.

So it is essential to be careful with cryptocurrency scams before investing money.

Other factors that affect the value of cryptocurrencies include:

  • How to store a cryptocurrency, as well as its availability, security, ease of access, and cross-border accessibility

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

  • The low risk of cryptocurrency perceived by investors and users

  • Feeling the news

  • Market liquidity and cryptocurrency volatility

  • Country regulations (which include a ban on cryptocurrencies and ICOs in China and legal recognition in Japan)