Cryptocurrencies are the latest 'big thing' in the digital world and also have now been named being section of the monetary system. In fact, enthusiasts have tagged it as 'the revolution of money'.
In clear terms, cryptocurrencies are decentralized digital assets that could be exchanged between users without the need for a central authority, nearly all which being created via special computation techniques known 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 a central bank; digital currencies, however, such as for example cryptocurrencies, are not reliant on the confidence and trust of the general public on the issuer. As such, several factors determine its value.
Factors that Determine the worthiness of Cryptocurrencies
Principles of Free Market Economy (Mainly Supply and Demand)
Supply and demand is a major determinant of the worthiness of anything of value, including cryptocurrencies. It is because 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
Mass adoption of any cryptocurrency can shoot its price to the moon. This is because of many cryptocurrencies having their supply capped at a particular limit and, in accordance with economic principles, an increase popular without a corresponding increase in supply will lead to a price increase of this particular commodity.
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Multiple cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing personal life issues, along with crucial day-to-day cases, with the intention of making them indispensable in everyday life.
Fiat Inflation
If a fiat currency, like the USD or GBP, becomes inflated, its price rises and its purchasing power drops. This will then cause cryptocurrencies (let's use Bitcoin as an example) to increase with respect to that fiat. The effect is that you will be able to acquire more of that fiat with each bitcoin. Actually, this situation has been among the major known 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. Occasionally, 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.
It is therefore imperative to be careful of cryptocurrency scams before investing your cash.
Some other things to consider, that have an effect on the worthiness of cryptocurrencies, include:
Way the cryptocurrency is stored, and also its utility, security, simple acquisition and cross-border acceptability
Strength of the community backing the cryptocurrency (this includes funding, innovation and the loyalty of its members)
Low associated risks of the cryptocurrency as perceived by investors and users
News sentiment
Market liquidity and volatility of the cryptocurrency
Country regulations (this consists of the ban of cryptocurrency and ICOs in China and its own acceptance as legal tender in Japan)