Cryptocurrencies are the trendiest things in the online world today. These are slowly but surely becoming a part of the monetary system. In fact, these are creating a monetary revolution like never before.
So, what exactly are cryptocurrencies and how do they gain value. Read on to find out.
In simple terms, cryptocurrencies are decentralized digital assets which are exchanged between users without being regulated by a central authority. Most of the cryptocurrencies today are created using special computation techniques commonly termed as 'mining'.
Currencies of countries all over the world are accepted as legal tenders because they are issued by a central bank. Cryptocurrencies, on the other hand, are not issued or controlled by any central bank.
So, what determines the value of cryptocurrencies?
As the number of buyers and sellers increase, the price of a cryptocurrency rises. Similarly, as the number of buyers and sellers decrease, the price of the cryptocurrency goes down.
When a fiat currency goes through inflation, its price becomes high and its purchasing power goes down. This affects the price of a cryptocurrency and there can be seen an increase in its value with respect to that fiat.
One of the major factors for the demand of a cryptocurrency is its security features. Cryptocurrencies are virtual currencies. They are intangible assets. This makes people uncertain about crypto investments. When a cryptocurrency boasts of high security, it gets more eyeballs and hence the demand and price goes up.
Another important factor that determines the value of a cryptocurrency is ease of acquisition. People do not like complexities. When a cryptocurrency offers a simple process of acquisition, it makes it more popular and more valuable. These were some of the major factors that determine the value of a cryptocurrency. Hope you know understand how cryptocurrencies gain value.