Cryptocurrency is
a new revolutionary type of currency. Like any other currency or unit of
account, they only have value because people think it has value. Some
currencies are backed by gold or other precious metals; others are backed by
nothing but hot air although have value because people think it has value
and use it as a unit of exchange.
Cryptocurrency were
designed as a unit of exchange and as a place to store assets without relying
on a central bank. This article will discuss the price of Cryptocurrency in
general and what affects the price, it is not limited to Bitcoin but this will
cover all cryptocurrency.
Precious metals
gain their value/perceived value due to their utility and limited supply, and
price is often tied to supply/demand. Supply/Demand is a simple economic factor
that affects the price of many things. In some countries Bitcoin and other cryptocurrency
is classed as an asset, in others as a currency.
Bitcoin, for example
has a maximum of 21 million whole units, divisible 100 million times. With over
7 billion people on the planet, if even 1 billion were to adopt Bitcoin, 21
million whole units would not spread very far without a significant price tag.
The supply is also
bought in at a constant rate and is unchangeable due to the coconscious rules.
This creates a supply that is limited, and thus people will pay more to get the
coins they think have value.
Block reward
halving’s, like the Bitcoin halving of 2016 caused the price to slowly increase
as the halving approached, due to the reduced supply of new incoming coins
imminent. This can affect the price of many cryptocurrencies, but in the case
of Litecoin, did not even make a major dent in the price.
A key factor in
the price of any cryptocurrency is its utility. If you cannot use it for
something, be it an investment or for payments, then it would have no or little
perceived value. In the case of Bitcoin, it is usable for payments on a
reasonably high and ever increasing scale, meaning that its utility is high.
Its high difficulty and energy usage give it a reasonably high price and as
such can be used for an investment. The changes to utility can cause price
volatility.
In the case of
Ether, as it was designed a smart contract platform this is a practical
utility, which increased the price of Ether over many other alternative
cryptocurrencies.
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