How is Cryptocurrency valued?

It’s a complicated matter to evaluate the value of a cryptocurrency. Unlike traditional currency - say, the US dollar - the value of a digital currency like the Bitcoin is determined by a number of factors.

The reason the US dollar has a particular value is that it is the only monetary form that the US government accepts. This intrinsic value it possesses, along with the public’s acceptance of it as the form of commercial transaction, gives the value we know it to have.

With cryptocurrency, it’s different. It has to do a lot with perception, for one thing. We’ll dive into the different aspects of how the value of cryptocurrency is determined.

One major element in determining value is the features present in the cryptocurrency. Bitcoin has no intrinsic value. It has no genuine use-cases. In other words, if Bitcoins were to disappear, the economy could still function, though we would lose all of its advantages. This is in fact how the world has been operating for centuries.

However, Bitcoins do provide a great deal of security, and other features like lowered transaction costs and instant payment. The use of public ledgers also give it great social value and this thus raises its perceived value.

Let’s also look at the case of Ripple, another cryptocurrency. This currency has value to banks as it operates in such a way that it pays for all the middle men’s work in financial processes. It can be used to pay for the “back-end” financial work. Indeed, it has, and numerous banks across the world have already begun to use it in this manner.

Application value is important as well. We can use paper money for everything, but this is not true for the cryptocurrency. Until and unless digital currencies can hit mainstream usage, their intrinsic value will always be less than that of traditional money. Remember, the value is different from price. Bitcoin’s high price per coin is not the same as having high value.

Supply and demand also factor into a valuation. Ripple has a large number of pre-mined coins, but the value of each coin is extremely low by comparison. That doesn’t mean the value of the coin is low, however.

In a nutshell, the question of value can be determined by the following question: can the cryptocurrency in question conduct and function better in all use cases that traditional money does? As it ticks off more and more of the checkboxes falling under this question, its value increases. The rise of Ethereum is partly because it does some things relating to this that Bitcoin does not. The same goes for Ripple.

To run off a quick list, the following criteria may determine value: Supply and demand, investors and investment, public perception, government and financial institution acceptance, fraudulent activity, the blockchain system and innovation.

It is a delicate process, valuing a cryptocurrency when the technology is only in the early stages. Money Trade Coin will help you sift through all the complicated information so you can make an informed decision about how to invest in cryptocurrency.

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