How Does Cryptocurrency Gain Value?

Cryptocurrency is the latest “big thing” in the digital world and is now considered part of the currency system. In fact, enthusiasts label it as a “money revolution.”

To be clear, cryptocurrencies are decentralized digital assets that can be exchanged between users without central authorization, most of which are created through special computing techniques 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 (for example, encrypted currencies) do not rely on the public’s trust 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 it, then the price of that particular cryptocurrency will increase, and vice versa.

Mass adoption

The large-scale adoption of any kind of cryptocurrency can push its price to a climax. This is because the supply of many cryptocurrencies is restricted to a specific upper 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.

A variety of cryptocurrencies have invested more resources to ensure their widespread adoption, some of which focus on the applicability of their cryptocurrencies in pressing personal life issues and key everyday cases, aiming to make them a necessity in daily life. Indispensable.

Fiat inflation

If fiat currencies (such as the U.S. dollar or the British pound) expand, their prices will rise and their purchasing power will fall. This will then lead to an increase in cryptocurrency (in the case of Bitcoin) relative to that fiat currency. As a result, you will be able to get more fiat currency with each bitcoin. 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 that affect the value of cryptocurrencies, because it is well known that scams and hacking can cause wild valuations to fluctuate. In some cases, the team that supports cryptocurrency may be a liar. They will draw the price of cryptocurrency to attract unsuspecting individuals. When their hard-earned money is invested, the scammer will shorten the price, and then the scammer will disappear without a trace.

Therefore, before investing, please be careful of cryptocurrency scams.

Some other factors that need to be considered will affect the value of cryptocurrencies, including:

  • The storage method of cryptocurrency, as well as its practicality, security, ease of purchase and cross-border acceptance

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

  • Investors and users believe that the risks associated with cryptocurrencies are low

  • News sentiment

  • Market liquidity and volatility of cryptocurrencies

  • National regulations (including the prohibition of cryptocurrency and ICO in China and their acceptance as legal tender in Japan)