People around the world are increasingly learning about cryptocurrencies every day. However, despite the fact that awareness is growing, there remains some confusion.
Cryptocurrencies may seem simple at first glance but this is a false impression. There is, generally, a lot of confusion surrounding them, what they do, and how they operate. Many see them as a magical solution, while others believe that they are only a bubble. Everyone agrees that cryptos hold at least some value, and as long as people keep thinking that, cryptos will remain relevant and significant.
This is where an important issue emerges — how can we determine how valuable a crypto is? There are actually two methods of evaluating any currency. The first one is based on the precious metals that are backing the said currency. The second one relies only on word, and the crypto becomes as valuable as people claim it to be.
When it comes to cryptos, there are numerous factors that can determine their value. These factors include everything, from media exposure to the coin’s innovation and even legality. Let’s review some of them, and determine how they can affect the value of a coin.
Factors that determine the value of a cryptocurrency
Let’s start with supply and demand. Similarly to precious metal, cryptos may have a rather limited supply. As their popularity grows, the demand goes up. With high demand and limited supply, the only thing that is left to change is the coin’s price, which usually skyrockets at this point.
Next, there is the matter of energy usage. Blockchain technology that backs cryptos is a big energy consumer, not to mention the amounts of energy needed for crypto mining. Not all blockchains need the same amount of energy, though, so this makes for another important factor.
Utilization is key, after all, you need to be able to use the coins in order for them to have value. Useless coins are worthless.
Next on the list is the opinion of the people. The way that potential investors and users see cryptos is very important. If the crypto is innovative, reputable, and trustworthy, more people will come to it, and its price will grow. If it is believed to be connected to criminal activities, however, the coin will likely lose on popularity. The way that the media report on the coins is also an important factor since they have a large influence on the public opinion.
Large investments can be game-changers for a lot of cryptos. If a large amount of coin is bought, and if a reputable entity is doing the buying, the coin’s value will always increase. That is how crypto gains the confidence of the masses, and how it becomes popular. With more investments, it can develop further, and the entire process repeats.
This brings us to innovation. The initial concept should be innovative, and the goal of the coin should be clear. However, the coin needs to continue to improve in as many ways as possible, to stay relevant.
And, of course, we should also mention legality and governmental issues. This can affect the price in no time, and the governments have changed the course of numerous coins so far.