What Determines the Value of Cryptocurrencies?
We are all aware that cryptocurrencies are digital assets. Every day, news regarding recent cryptocurrency highs and lows appears in our feeds, and many crypto enthusiasts profit from price movement.
Investing in cryptocurrency can be a profitable one if you understand how it is valued. This article summarizes the most significant elements determining the value of cryptocurrencies and indicators, as well as their true value.
What is a cryptocurrency?
Cryptocurrency is a term that refers to a digital asset.
All crypto transactions take place online, and their records are stored on a public ledger called a “blockchain.” This database could be used to establish possession of any cryptocurrency, and it is not limited to crypto-related transactions; it can also be used to keep records of other valuable belongings.
Cryptocurrency is its most popular financial aspect, and it has received popularity in the past few years. Users of cryptocurrencies can send and receive cryptocurrencies for the payment of goods and services through the blockchain. Cryptocurrencies have massive benefits, one of which is that they are uncontrollable by anyone, and service charges are quite low. To this effect, cryptocurrencies are widely accessible, have high resistance to inflation (which is a typical occurrence with fiat currency), and all their operations are transparent.
While cryptocurrency trading is gaining traction in the field, it is critical to remember that using cryptos as a monetary system is distinct from trading. In just the same way people purchase and sell stocks, cryptocurrency users do the same. Holders of any stock are presumed to own a portion of the corporation. By contrast, purchasing a cryptocurrency token grants you ownership of that particular token.
The demand for a company’s products affects its stock price, while the price of trading crypto is governed by the crypto monetary system. The supply and demand for the asset, as well as the heavy competition from rival cryptocurrencies, all have a role in determining the value of a cryptocurrency.
Cryptocurrencies can be classified into three groups:
With a total supply of 21 million coins, Bitcoin is the first cryptocurrency ever created. Bitcoin has a finite quantity, it can be used as a store of value to protect your assets from the effects of inflation. Investing in a store of value currency is akin to gold.
Bitcoin’s mining technique is based on the Proof-of-Work algorithm. This means that a network of miners keeps the Bitcoin blockchain operating by performing challenging calculations. Miners are paid with newly created Bitcoins as compensation for their contributions. Thanks to Proof-of-Work, Bitcoin’s transactional mechanism can now have a genuine value. Each Bitcoin has a set amount of computational power connected to it.
Altcoins are different from bitcoins in a lot of ways, but they also have a lot in common. Altcoins are derived from bitcoin forks and exist in a variety of forms.
Bitcoin and altcoins differ greatly in terms of blockchain technology. The infinite supply of some altcoins has a huge effect on their utility. Mining and transaction times have also been shortened as a result of the speedier blockchain developed by several altcoins.
Different altcoins use different mechanisms for confirming the validity of transactions. Certain altcoins use proof-of-work, while proof-of-stake is used by others, with validators taking the place of miners. Proof-of-Stake, in contrast to Proof-of-Work, requires a lot of extra “work” from miners while using less energy and equipment.
Alternative coins could be used to create smart contracts. When certain specified conditions are met, it can be run automatically. There is usually no need for a middleman, and it can be completed quickly. Smart contracts have a variety of applications, making them a good investment.
Tokens were created so that smart contracts or tokens might be used as a form of currency and are used in decentralized apps (dApps).
Miners build a public ledger known as a blockchain to keep track of a cryptocurrency’s worth. It’s similar to how central banks used to retain gold reserves to back up their fiat currencies.
Tokens, on the other hand, have no physical value. They may be used to purchase items from dApps and earn cheaper transaction and vote costs, which has enhanced their appeal, similar to how fiat currencies are no longer linked to gold.
What determines a cryptocurrency’s value?
As with any currency, the value of cryptocurrencies is determined by the extent to which the community participates (such as demands of the users, scarcity, or the coin’s use case). Nonetheless, given that some of the digital assets on the market are created by private blockchain-related organizations, certain aspects of crypto value will be determined by the reputation and performance of these companies (such as the sustainability and apparent value of the project).
Cryptocurrency Use Case
For a cryptocurrency to be valuable, it must be useful. Thus, to make a digital asset useful, it must be used within a particular blockchain ecosystem.
Using Diagon as an example. You cannot participate in our gaming challenges unless you have $DGN — a token designed specifically for gaming within the Diagon ecosystem.
Additionally, a cryptocurrency’s utility can include dividend payments, a medium of exchange on a blockchain, voting purposes, and so on.
Scarcity refers to the digital currency’s limited nature. In an ideal world, demand for the coins would exceed supply, increasing their value. For instance, Diagon’s token (DGN) finite supply never exceeds 50 million. If demand keeps surging, Diagon will certainly enjoy high demand and a steady increase in value. To facilitate the increase in value, Diagon employs a “burning” mechanism, which involves the destruction of a portion of the coin quantity.
The Project’s “Perceived” Value
The value of any cryptocurrency is based upon the project’s total sustainability and progress. Projects that continue to evolve, hitting targets, forming profitable partnerships, or delivering easy-to-use software, gain market value. All of them are indications that contribute significantly to the project’s favorable sentiment and influence the cryptocurrency’s value.
About Diagon and its token system
Diagon is a hyper-casual crypto gaming platform that offers gamers an opportunity to earn digital assets while having the best gaming experience within our virtual space. Our gaming platform is a cutting-edge, next-generation economy with significant growth potential. With over three years of expertise in the crypto gaming sector, we have deployed blockchain-based solutions to guarantee the best digital gaming experience.
Our ecosystem is made up of three tokens.
1. Diagon Token (DGN)
2. Casual Token (CSL)
3. Incentive Token (iDGN)
To know more about our ecosystem, click here