How does cryptocurrency gain value?

Cryptocurrencies are the last “big thing” in the digital world that is now recognized as part of the monetary system. In fact, enthusiasts called it a “money revolution”.

Clearly, cryptocurrencies are decentralized digital assets that can be exchanged between users without the need for a central authority, most of which are created using special computational methods called “mining”.

The adoption of currencies such as the US dollar, the British pound and the euro as legal tender is due to the fact that they were issued by the central bank; However, digital currencies, such as cryptocurrencies, do not depend on public confidence and trust in the issuer. Thus, several factors determine its significance.

Factors determining the value of cryptocurrencies

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

Demand and supply are the main factor that determines the value of something valuable, including cryptocurrencies. This is because when more people are willing to buy a cryptocurrency and others are willing to sell, the price of that cryptocurrency will increase, and vice versa.

Mass adoption

Mass adoption of any cryptocurrency can raise its value to the moon. This is due to the fact that the number of cryptocurrencies is limited to a certain limit, and, according to economic principles, an increase in demand without a corresponding increase in supply will lead to higher prices for this particular product.

Several cryptocurrencies have invested more resources to ensure their mass adoption, with some focusing on the suitability of their cryptocurrencies for pressing personal issues as well as important day-to-day occasions in order to make them indispensable in everyday life.

Fiat inflation

When a fiat currency, such as the U.S. dollar or GBP, becomes overvalued, its value rises and purchasing power falls. Then cryptocurrencies (let’s use bitcoin as an example) increase against that fiat. As a result, you will be able to get most of this funding with each bitcoin. In fact, this situation has become one of the main reasons for the rise in bitcoin prices.

History of fraud and cyberattacks

Fraud and hacking are also major factors affecting the value of cryptocurrencies, as they are known to cause wild fluctuations in valuations. In some cases, a team that supports cryptocurrency may be a fraud; they will pump up the value of the cryptocurrency to attract unsuspecting people, and when they invest their money with difficulty, the price is reduced by fraudsters who then disappear without a trace.

It is therefore very important to be careful with cryptocurrency fraud before investing.

Some other factors to consider that affect the value of cryptocurrencies include:

  • The manner of storage of cryptocurrency, as well as its usefulness, security, ease of acquisition and borderline visibility

  • The strength of a community that supports cryptocurrency (this includes funding, innovation, and member loyalty)

  • The low associated cryptocurrency risks perceived by investors and users

  • News

  • Market liquidity and cryptocurrency volatility

  • Country rules (this includes banning cryptocurrencies and ICOs in China and accepting them as legal tender in Japan)