What is the value of cryptocurrency and what does its value depend on
Cryptocurrency is a new revolutionary type of money. Like any other currency or unit of account, it has value only because people believe that it has value in the form of a unit of exchange. Some money is backed by gold or other precious metals, others are not supported by anything, although they are valuable because people attach importance to them and use them as a unit of exchange.
Cryptocurrencies were developed as a unit of exchange and as a place to store assets that are not dependent on central banks.
The economic crisis in the United States in 2008 was the starting point on the historical timeline of the global economy. This incident strongly influenced the programmer under the nickname Satoshi Nakamoto (it is still unclear whether he is one person or a group of people, because the identity has not yet been established). In 2009, Nakamoto published a technical document explaining the concept, technology and source code for implementing the blockchain. In addition, he introduced Bitcoin, the world’s first cryptocurrency.
Nakamoto’s invention was not destructive, but it was a fundamental technology. Blockchain, by its very nature, aims to replace the central authority of all forms with decentralized and peer-to-peer.
An excursion into the mechanism of work and what the cost of cryptocurrency depends on
The most important difference from the usual payment system is the absence of an emission center (in each country’s economy, this role is played by central banks). And directly the creation of money itself occurs according to the created and calculated algorithms. It is envisaged that over time, a certain amount will gradually pour into the market, the size of which will be set in advance.
The issue manifests itself as a reward to participants who have provided the power of their personal computers for the functioning of the algorithm calculations (mining)
A revolutionary feature of such a system is the ability to exclude unauthorized infusion of cryptocurrency. In other words, no one can just print a certain amount of bitcoins for themselves because of the impossibility of this action. It is also unrealistic to write a program that will replenish the wallet balance, as the system monitors all transactions carried out and takes them into account. Also a bright advantage of the system is that it has a decentralized nature, which means it is more resistant to external shocks.
Blockchain is the main register that registers and saves all previous transactions and activity, checking ownership of all currency units at any time. As a result, it has a finite length containing a finite number of transactions, which increases over time.
Identical copies of the blockchain are stored in each node of the cryptocurrency software network – a network of decentralized server farms that are managed by computer specialists or groups of people known as miners. They constantly record and authenticate cryptocurrency transactions.
Technically, a cryptocurrency transaction is not completed until it is added to the block chain, which usually happens within a few minutes. Once a transaction is completed, it is irreversible – unlike traditional payment processors such as PayPal and credit cards, most cryptocurrencies do not have built-in money back functions.
During the period between the initiation and completion of the transaction, units are not available for use by either party. Thus, the chain of blocks prevents double spending or manipulation of the cryptocurrency code, allowing you to duplicate the same currency units and send them to multiple recipients.
What determines the price of Bitcoin and other units
Comparing cryptocurrencies with regular money, digital currency wins significantly. This is because over time, conventional funds have inflation, which in addition can be strengthened by the Central Bank. Cryptocurrency, over time, undergoes only the opposite process – deflation. This is influenced by the constant growth of global production and its limited volume in the market. Thus, it creates demand, on which the price of cryptocurrency depends.
Let’s take an example. A person with 100 rubles will be able to buy much less products and things in one year. And the owner of 100 bitcoins, on the contrary, will gain more in the same period of time.
Why is cryptocurrency gaining popularity and becoming more valuable
At first, it may be quite difficult to realize that not only the state is capable of issuing money. However, if we imagine that, in fact, we accept a monetary unit as payment for a product or service only because there is confidence – then other market participants will accept these funds from us and provide their services for them, then everything falls into place.
Why is cryptocurrency valuable
At the same time, careful thoughtfulness of the system, its security from the inflationary process and the lack of the possibility of fraud increase the popularity of cryptocurrency. Demand also generated the initial desire of some participants to sell their services and goods for this currency, which gave rise to buyers’ willingness to accept it as payment. As a result, what started as an experiment became real money.
Think about it, because in fact, after the world system abandoned the “gold standard”, money began to depend on the state of production of states and the policies of their governments. Cryptocurrencies do not have such uncertainty.
What determines the price of a cryptocurrency:
- Limited supply and demand;
- Using the blockchain system;
- Usefulness of currency, ease of use and storage;
- Public perception of its value;
- Bitcoin cost;
- Opinion of the media;
- Investor deposits
- The impossibility of fraud;
Due to the fact that cryptocurrency is an emerging market, due to the changes it imposes on the financial system, the market is still volatile. In combination with many of the above factors, the price of a digital currency can rise and fall quickly, making it a risky investment without proper research. However, the advantages make it suitable for making payments, as well as investing, which was one of the initial intentions of bitcoin.
As a rule, any state apparatus strives for the constant growth of its control and influence, and this is especially acute with regard to money circulation. Constantly in news releases on TV channels you can hear about how states issue bills to counter the spread of cryptocurrency.
Using the legal framework, the government can influence the value of monetary units and other things and services. If the state has legislated high taxes, then business, in turn, can hide assets in cryptocurrency, which will positively affect its value.
For example, in Ecuador, China, the government banned the use of bitcoins, while some other countries granted official cryptocurrency status in order to subsequently establish its taxation. The lack of a legal framework in many countries remains an obstacle, as legal precedents for cryptocurrencies are still being established. And due to the limited ability to control it on the open Internet, it can be used against the will of the government.
- A resident of Norway Christopher Koch acquired in 2009 bitcoins for $ 27. When he remembered them, he was already the owner of 886 thousand dollars;
- In 2010, a guy in the USA bought pizza for bitcoins, which, according to today’s value, is estimated at $ 5 million;
- It is planned to create 21 million units of bitcoin, which, according to calculations, will be fully mined in 2140.