How Do Cryptocurrencies Gain More Value?
Unless you have been living under a rock, you have heard plenty about the highs and lows of Cryptocurrencies. As a digital currency, many old-school investors may not appreciate their value.l However, the reality is that Cryptocurrencies are gaining popularity as a viable investment. If you’re wondering how Cryptocurrencies gain their value, you’re not alone. Keep reading to learn more about what Cryptocurrencies are and how they gain more value.
What Are Cryptocurrencies?
A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities. The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network.
In the simplest terms: Cryptocurrency allows for secure payments online through digital tokens.
Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently represents more than 60% of the total value. While Bitcoin may be the most well-known cryptocurrency, there are also several other competing cryptocurrencies. These include:
How Cryptocurrencies Gain Value
There are a couple of ways that Cryptocurrencies gain their value. These include perceived value and scarcity.
Cryptocurrencies can gain more value by how they are perceived. The more people want or need Cryptocurrencies, the more they are seen as valuable, and the price goes up.
Think of perceived value in terms of fine art. Your 5-year-old paints pictures all the time, but his works would not be sold for anything at auction. However, a Monet would sell for millions. Even though they are both artworks, one of them has a perceived value and the other does not.
This same thinking can be transferred to Cryptocurrencies. The more they are talked about in the news and gain popularity, the more they will be perceived as valuable — and this will drive up their pricing.
You can also compare Cryptocurrencies to baseball cards. Consider that you purchased a pack of baseball cards for $5 from the store. You have paid for the tangible value of the cards, the cost of making them, and the cost of the salesman who sold the pack to you. Then, you get home, open the pack of cards, and notice that you have a rare rookie card included in the pack. The value of the pack of cards has instantly gone up from $5 to hundreds or even thousands and has just turned into an asset. While the valuable rookie card might be physically no different in tangible structure from the other cards in the pack, it holds more value by how it is perceived.
An essential component to keeping any currency valuable is its scarcity. The less you have of something, the more valuable it is because it is more difficult to obtain. This is also true with money. If banks printed off endless amounts of money, it would cause prices of goods and services to drive up and eventually cause an economic collapse. If the money supply is too small, it becomes too difficult to obtain and nobody is able to participate in commerce. This also causes economic collapse.
This scarcity is a big reason why Cryptocurrencies are so valuable. There are only so many of them, which keeps the demand high.
How Cryptocurrency Investors Make Money
There are two ways that investors can make money with Cryptocurrencies:
- Mining. Cryptocurrency mining is the process by which new Cryptocurrencies are entered into circulation. People are able to obtain new Cryptocurrencies without having to pay for them. In the case of Bitcoin, Bitcoin miners receive Bitcoin as a reward for completing “blocks” of verified transactions that are added to the blockchain. They are rewarded with tokens because they are also doing the work of verifying the legitimacy of Bitcoin transactions.
- Selling at a profit. When the value of a Cryptocurrency is higher than the amount an investor has paid for it, they can sell their Cryptocurrency and enjoy the profit. Just like selling a house, or really anything else, it can be transferred from one owner to the next.
About Priority Gold
Cryptocurrencies are rising so much in popularity, they are up there with Gold as far as their value and balancing power. However, if you are looking to make an investment in something as valuable as Cryptocurrencies but a little simpler, Gold is perfect for you. You don’t need any prior knowledge or experience, and there’s no mining involved.
We specialize in providing precious metals investment services with Security, Liability, and Great Convenience for customers. Our team is committed to helping to streamline their precious metals purchases at a fair price, selecting the right precious metals portfolios, and meeting their important financial objectives.
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