Issuing cryptocurrencies allows for the functioning of an optimal means of payment, which both facilitates investing in the stock exchange and ensures the privacy of transactions. This allows you to bypass the regulation and participation of banks and payment systems when buying or selling cryptocurrencies.
In order to present an approximate value of a cryptocurrency, a comparison of digital currencies with precious metals is often used. In both cases, we are dealing with a limited asset with a special purpose. In the industrial sector, gold is used on a daily basis, and in finance – blockchain technology.
The value of traditional cryptocurrencies – where does it come from?
A useful cryptocurrency is an asset that consists of the following attributes: rarity, divisibility, acceptability, portability, durability, and resistance to counterfeiting. It is because of them that cryptocurrencies have so dynamically adapted to the economy. Thus, they contribute to minimizing monetary inflation.
A useful currency is a kind of store of value, a means capable of maintaining a certain value in a given period. Throughout history, societies have used many items to carry out transactions because those people believed were monetary stable.
Early forms of money such as cocoa beans and gold bars were eventually reduced (if not completely abandoned) in favor of more convenient alternative forms. At first, these were made of metals that ensured a long shelf life and protection against depravity.
The attribution of values to currencies is a matter of debate. Initially, their value was due to their internal physical properties. For example, the value of gold is derived from mining costs and certain qualitative factors such as gloss and purity content.
Nowadays, currencies issued by the government often take the form of paper money, which does not have the same scarcity as precious metals. For a long time, the value of paper money was determined by the amount of gold on which it was held. Even today, some currencies are “representative“, meaning that any coin or banknote can be directly exchanged for a certain amount of commodity.
The value of cryptocurrencies – what does it come from?
The discussion of how the value of cryptocurrencies can be determined generally includes the physical aspect of payment methods. The structure of gold and its weight at some point became a problem. The improvement in the form of paper money resulted in the need to build factories and places to store cash. Then the shift to digital currencies was made, and money began to move away from material form in favor of increasing functionality.
Cryptocurrencies are not supported everywhere by governments or monetary authorities. For this reason, in such places there are difficulties in adopting digital currencies on the market.
Cryptocurrencies share two characteristics with fiat currencies. It is about a limited amount and resistance to counterfeiting. The exception is the possibility of creating a counterfeit bitcoin by the double-spending method: if a user sends the same bitcoin in several separate configurations, he becomes the owner of his duplicate record.
Why does cryptocurrency value not exist for some people?
As with any asset or thing of value, the price people are willing to pay for cryptocurrencies is a socially agreed level. In addition, it is also based on supply and demand. Since bitcoins are virtual, they only exist in computer networks, making it difficult for some people to understand that bitcoins are few and expensive to produce. Due to this reluctance to accept the fact that digital traces can be of value in this way, people remain convinced that bitcoins are worthless. Others who understand the blockchain system agree on their actual value.
The market price of cryptocurrencies is very volatile and is subject to large price fluctuations. As a result, this may at any time significantly differ from fair value or intrinsic value. Over time, however, oversold markets tend to rebound and overbought markets “cool down”. Consequently, it cannot be said at any point in time whether cryptocurrencies are fairly priced without any possible retrospective benefits.
Cryptocurrencies are seen as an alternative to money controlled by a central bank. To learn more or wondering how to buy cryptocurrencies in exchange office? Visit our guide!