Cryptocurrencies are the latest ‘big thing’ in the digital world and also have now been recognized as being area of the monetary system. Actually, enthusiasts have tagged it as ‘the revolution of money’.

In clear terms, cryptocurrencies are decentralized digital assets that can 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 because they have been issued by way of a central bank; digital currencies, however, such as cryptocurrencies, aren’t reliant on the confidence and trust of the general public on the issuer. As such, several factors determine its value.

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Factors that Determine the Value 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. This is because if more people are prepared to buy a cryptocurrency, and others are willing to sell, the price of that particular cryptocurrency will increase, and vice versa.

Mass Adoption

Mass adoption of any cryptocurrency can shoot its price to the moon. That is because of many cryptocurrencies having their supply capped at a particular limit and, in accordance with economic principles, an increase in demand without a corresponding upsurge in supply will lead to a price increase of this particular commodity.

Multiple cryptocurrencies have invested more resources to make sure their mass adoption, with some focusing on the applicability of their cryptocurrency to pressing personal life issues, as well as crucial day-to-day cases, with the intention of making them indispensable in everyday activity.

Fiat Inflation

If a fiat currency, just like the USD or GBP, becomes inflated, its price rises and its own purchasing power drops. This can then cause cryptocurrencies (let’s use Bitcoin for example) to increase with respect to that fiat. The effect is you will be able to acquire more of this fiat with each bitcoin. Actually, this situation has been one of 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, because they are recognized to cause wild swings in valuations. In some instances, the team backing a cryptocurrency may be the scammers; they’ll pump the cost of the cryptocurrency to attract unsuspecting individuals and when their hard-earned money is invested, the price is shortened by the scammers, who then disappear with out a trace.

It is therefore vital to be careful of cryptocurrency scams before investing your cash.

Some other things to consider, that have an impact on the value of cryptocurrencies, include:

Manner in which 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)