Value of cryptocurrencies
The cryptocurrency crisis the market has recently experienced has shaken a lot of people. Some traders and investors started to ask themselves if it is a good idea to invest now, or later, or at all.
Cryptocurrencies are presented to society as something extremely important and valuable — a beacon of light in the dark. But, is it really so? What determines the value of cryptocurrencies? In this article, we will try to find an answer to this question.
How did we come to this?
“It is game-changing” — this is the first thought that comes to people when the term “cryptocurrency” is used. Such a point of view is understandable. The rules of the modern market change rapidly. What everyone considered a joke or a short-term trend has become a part of a new economic system. But what does it really mean for modern and future society and its economic system?
Imagine a market as a living creature. As any other, it grows, develops and completes different steps of evolution in order to become better and, as a result, have higher chances to survive.
Such a unique creature as a market requires specific components to live— its products on it, without any doubt. But also, it is the currency, which is extremely important on any market.
In prehistoric times people just used to exchange one thing for another. One object or service has become a payment for another. However, as the market was growing, such a system appeared to be ineffective. That is why it has transformed to what it is nowadays.
Cryptocurrencies — the replacement of standard money?
The cryptocurrencies are changing the rules of an entire market by their mere existence. They show that even money, something very conservative and old-fashioned, can become digital and modern. Nowadays, you can easily convert currencies, and you don’t need to go to special centers. You can use a trusted platform like cryptocurrency exchange online. It is comfortable, isn’t it?
The question many people are asking right now is this: are cryptocurrencies already replacing standard money? According to the Futurism report, it is a quite possible outcome. But, such a transition will change a lot more things than you can imagine. All the infrastructure around you will change to adapt to the new world. However, it is a bit far out in the future.
In the modern world, fiat money is still a base of a world economy. Cryptocurrencies will require much more investments in order to become a proper replacement for old-fashioned money.
What makes cryptocurrencies so valuable nowadays?
Cryptocurrencies have captured today’s market, but what makes them so thought-after? Here are the 6 factors that play into the value of cryptocurrencies.
Utility is about using something to get something. You can use cryptocurrencies to buy what you need. The more easily you can use a coin for purchasing goods or services, the more value it will have. Moreover, utility is about the speed with which a currency can be moved from one place to another. This factor is also important in determining the value of crypto.
Regular money works only as long as it stays physically intact. When you cut or tear a banknote, it loses its value. Cryptocurrencies don’t have a physical form, which means that they can’t be damaged like regular banknotes. This means, they don’t lose their durability so easily.
When you can use something fast, you like it more. This is one of the important values of modern cryptocurrencies. The faster they are, the more people will buy them. You can exchange cryptocurrencies or buy some goods fast, because the coins transport from one point to another quickly. So, at some point, you will forget the difference between regular money and cryptomoney, because their transportation time will be the same.
When demand is bigger than supply, an object becomes valuable. A good example of this rule is the value of brand objects or jewelry. It is not accessible to everyone, and so such objects have high value.
The same rule works in the world of cryptocurrencies. The limitation of an amount of some cryptocoins makes them more expensive and valuable on the market (for example, LTC or XLM).
One of the main values of fiat money is that it can be divided as you wish. If you need to pay $50, you can use 10 banknotes of $5 or 5 banknotes of $10.
Modern cryptocoins can also be divisioned into smaller pieces to make financial operations easier. You do not have to buy a whole cryptocoin, but only 1/10 if it is okay for you.
Fake money is a big problem for all financial institutions around the globe. When the government creates a new way to secure banknotes, people find new ways to crack it. And this cycle has no ending.
Cryptocurrencies work a bit different from fiat money. Usually, they operate on decentralized blockchain systems, which makes it hard, almost impossible, to hack the system.
Just like with regular money, numerous factors go into the determination of a cryptocurrency’s value. Understanding these factors makes it easier to grasp the price fluctuations of coins and even predict future price changes. If you know the basics and keep tabs on the relevant news, you will have no troubles in the crypto industry.
Ethan Moore, crypto and stock trader since 2012. Co-founder of Blockwatch experts team.