Cryptocurrencies have been available to the public for almost a decade now, but their popularity is a relatively new phenomenon. Many people have now started to invest in one of the many digital coins available today. The process of creating these coins – called Mining – is limited to geeks, who work on powerful computers to solve complex mathematical equations to create virtual currencies like Bitcoin, the oldest and most popular of all. Based on the idea of decentralization, the blockchain technology behind these coins plays an important role in their sustainability and security.
How does cryptocurrency work and how is its value determined?
To understand this, we first need to know how a cryptocurrency is different from a fiat currency (Indian rupee, US dollar, etc.). The biggest difference is that fiat currency is backed by governments and declared to be legal tender. It derives its value from the fact that two parties to a transaction place their trust in this value. Most countries operate in a fiat money system, where central banks and monetary reserves control the money supply and, as such, indirectly control inflation.
Cryptocurrencies are not regulated by governments; they are decentralized. Most countries do not yet accept them as legal tender. Cryptocurrencies will also generally have a fixed supply, so their devaluation by inflation is unlikely.
Apart from that, both have similar characteristics. Both can be a medium of exchange for purchasing goods and services, and both have a relative store of value.
Cryptocurrency Public Ledger
Each cryptocurrency transaction is automatically entered into a decentralized ledger that is neither regulated nor handled by a single entity. All transactions are cryptographically secure and can be viewed by anyone from anywhere at any time.
Number of cryptocurrency nodes
The number of nodes measures the number of active wallets existing on the network. It is a good indicator of the value of a cryptocurrency. To see if a currency is priced right or if it is overbought, one can look up the number of nodes and the total m-cap (market capitalization) of the cryptocurrency, then compare the two indicators with other cryptocurrencies. . The number of nodes also shows how strong a cryptocurrency community is – more nodes means stronger communities.
To learn more about cryptocurrency, a person can visit an online exchange, such as WazirX or Binance in India. All the details related to any cryptocurrency – like its market capitalization, performance over the past few weeks and months, total currency in circulation, current and past value – are available there. These cryptocurrency coins, such as Bitcoin, Ethereum, or Dogecoin, can also be traded on these exchanges for a fee.
Determining the price of cryptocurrency
The most efficient way to determine the price of a cryptocurrency coin is by demand. Strong demand from buyers will drive up the value of a digital coin. Conversely, if a coin has a high supply of tokens with a low demand, its value will drop. Other factors that influence the price of a crypto coin include the utility level of the token i.e. the utility of the token. A difficult mining process would mean that it is more difficult to increase the supply of the coin and cause upward pressure on the price when demand is high.
If more people invest in a crypto coin, its value may soar. Yet these virtual currencies are far from being adopted by the masses. Why? Because there are real world issues associated with them. One: They cannot be exchanged for goods and services as widely as fiat currency. For these digital coins to be adopted en masse, their usefulness must increase and the business must appear lucrative to the buyer.
The cryptocurrency market is still new and many people are not yet familiar with the industry. New markets have qualities that make them inherently volatile. Then, some whale accounts contain a large number of cryptocurrency coins and tend to influence the markets for profit.