Value of a cryptocurrency
Intrinsic value
Since cryptocurrencies are digital units of account, they do not have an intrinsic value like gold, comparatively. To be fair, one should keep in mind here that euro and dollar bills are basically just paper.
Those who wonder how it is possible for digital currencies to be highly traded without intrinsic value should realize that in the information age, companies like Microsoft, Apple, Google and Meta became powerful based on data and information that per se has no intrinsic value.
Digital payment systems have been used by banks for many years, but most importantly, credit card institutions like Visa and Mastercard and services like PayPal have been able to take advantage of the digital revolution.
However, it is primarily the decentralization, security mechanisms and anti-counterfeiting that make Bitcoin and cryptocurrencies so valuable.
The notion of value changes from generation to generation. Our technology continues to evolve and so does our financial system.
Market value
The price and value of a cryptocurrency basically results from the relationship between supply and demand. When there are more buyers than sellers, the price goes up, and when there are more sellers than buyers, the price goes down.
The market demand is measured by the willingness to buy the cryptos, while the market supply indicates what quantity is available at a certain price.
Indicators for this are the order book, in which the sales and purchases are listed, and the so-called spread, which shows the difference between the highest buy order and the lowest sell order. There are other factors that can affect the value of a cryptocurrency, such as:
Acceptance: the more people accept and use a cryptocurrency, the higher its value usually is.
Technology: the technology behind a cryptocurrency can also influence its value. If a cryptocurrency has innovative technology that sets it apart from other cryptocurrencies, this can increase its value.
Regulation: the regulation of cryptocurrencies can also influence their value. If a government bans or restricts a cryptocurrency, this can lower its value.
Supply: the supply of a cryptocurrency can also affect its value. If there is a limited number of coins, this can increase the value, while a high number of coins can decrease the value.
Market sentiment: the general market sentiment can also influence the value of a cryptocurrency. If the sentiment is positive and investors are optimistic, this can increase the value, while a negative sentiment can decrease the value.
It is important to note that the value of a cryptocurrency can be very volatile and can change quickly. It is therefore important that investors carefully consider their investments and are aware of the risks before investing in cryptocurrencies.
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Blockchain as a currency system
Bitcoin emerged as the first cryptocurrency in the financial crisis of 2008.
All coins and tokens that exist alongside it are called altcoins.
Cryptocurrencies want to ensure more fairness than centralized financial institutions like banks by means of decentralization.
Due to its technology and characteristics, a public blockchain is suitable as an open cash book that can be viewed by everyone.
Technically, cryptocurrencies are just bits and bytes. Cryptographically encrypted money that moves on networks called blockchains. The mechanisms make them secure and tamper-proof. There are now many reasons why many cryptocurrencies with no intrinsic value are riding high.
The network should always be available and thus has no opening hours. In addition, payments cannot be blocked. They are made between two users, for which there is no upper limit/no limit on the amount of money. A fee must be paid for each transaction. Chargebacks are not possible on blockchains, so entries should be checked at least twice for accuracy.
One currently has the problem worldwide that more than 1.7 billion adults do not have a bank account. Potentially, any person with a wallet, a suitable device (smartphone or PC) and access to the Internet can manage cryptocurrencies.
Most cryptocurrencies are highly volatile and develop their value on exchanges. Stablecoins, as the name suggests, are stable and are linked to other values such as FIAT or gold.
Advantages
Public blockchains grant access to the network to everyone (without exception). Thus, people can manage money without a registered bank account if they have a suitable device and access to the Internet.
Decentralization and independence from financial institutions.
Direct transfers between traders.
No limits in the amount of transactions.
The use of the blockchain is possible at any time.
Since blocks are almost immutable afterwards, document forgery is almost impossible.
Uncontrolled inflation is impossible due to caps.
Encryption protocols make cryptocurrencies virtually unassailable.
Transactions usually take a few minutes.
Semi-anonymity allows a certain degree of privacy. One does not have to register by name.
Disadvantages
If an error occurs during transfers, the money cannot be reclaimed.
Decentralized "Proof Of Work" systems have a relatively high energy requirement.
If you lose your password, you lose access to the money.
If you get hacked, you may lose the entire balance of your wallet.
Transactions do not happen instantly, but require a few minutes.
Very high volatility.
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How to analyse and value cryptocurrencies
There are several methods to analyze and value cryptocurrencies. Here are some of the most important ones:
1. Fundamental Analysis: Fundamental analysis refers to valuing a cryptocurrency based on factors such as its technology, team, market demand, and competitive landscape. It is important to understand the underlying technology and use cases of the cryptocurrency to evaluate its long-term prospects.
2. Technical Analysis: Technical analysis refers to the evaluation of a cryptocurrency using charts and technical indicators. It is important to analyze the price movements and trends of the cryptocurrency over time to make predictions about future price movements.
3. Market sentiment analysis: Market sentiment analysis refers to the valuation of a cryptocurrency based on the sentiment and behavior of market participants. It is important to consider the opinions and behavior of investors, traders, and other market participants to make predictions about future price movements.
4. Comparison with other cryptocurrencies: It is important to evaluate a cryptocurrency against other cryptocurrencies to understand its strengths and weaknesses. It is also important to consider the competitive landscape and see how a cryptocurrency compares to other similar projects.
It is important to use a combination of these analytical methods to make a comprehensive assessment of a cryptocurrency. It is also important to pay attention to recent developments and news related to the cryptocurrency, as they can have a significant impact on the price.
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Visions of cryptocurrencies
The vision of cryptocurrencies is to create a decentralized alternative to the traditional financial system that allows users to transact directly with each other without the need for a central authority. Cryptocurrencies are intended to provide a secure, fast, and inexpensive way to transfer and store value.
Another goal of cryptocurrencies is to promote financial inclusion by giving people access to financial services that have traditionally been unavailable due to constraints such as geographic location or lack of creditworthiness.
In addition, cryptocurrencies are designed to protect the privacy and anonymity of users by encrypting and pseudonymizing transactions. This is an important aspect, as many people have concerns about governments and financial institutions monitoring and controlling their financial activities.
Another goal of cryptocurrencies is to increase the transparency and integrity of financial transactions by relying on blockchain technology. The blockchain makes it possible to track transactions in real time and ensure that they cannot be manipulated.
Overall, the vision of cryptocurrencies is to create a decentralized, secure, and transparent alternative to the traditional financial system that allows users to take control of their money and finances. It remains to be seen how the technology will develop in the future and what impact it will have on the global economy.
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Risks & Opportunities
Cryptocurrencies have both risks and opportunities. Here are some of the main risks and opportunities:
Risks:
Volatility: Cryptocurrencies are known for their high volatility, which means that their prices can fluctuate quickly and unpredictably.
Security risks: Cryptocurrency Apps and Passwords are vulnerable to hacking and fraud, if they are not kept safe.
Regulatory risks: Cryptocurrencies are not controlled by a central authority, which means that they can be regulated by governments and financial institutions.
Acceptance risks: Cryptocurrencies are not accepted by all merchants and businesses, which may limit their use.
Opportunities:
Decentralization: Cryptocurrencies are decentralized, which means they are not controlled by a central authority. This can lead to more freedom and independence.
Fast and cheap transactions: Cryptocurrencies enable fast and cheap transactions, especially compared to traditional financial systems.
Anonymity: Cryptocurrencies can be used anonymously, which can be beneficial for some users.
Potential returns: Cryptocurrencies have historically generated high returns, which can be attractive to investors.
It is important to note that cryptocurrencies are a relatively new and rapidly evolving field, and their risks and rewards may change over time. It is important to thoroughly research cryptocurrencies and only take the risk you can afford to lose.
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Trading
Cryptocurrency trading refers to buying and selling cryptocurrencies on an exchange or trading venue. It is similar to trading stocks or foreign exchange, where you try to profit from the fluctuations of the market.
In cryptocurrency trading, there are different strategies that one can use, such as day trading, swing trading, or position trading. Day trading refers to buying and selling cryptocurrencies within a day, while swing trading refers to buying and selling cryptocurrencies over a period of several days or weeks. Position trading refers to buying and selling cryptocurrencies over a longer period of time, often months or years.
When cryptocurrency trading, it is important to keep an eye on market conditions and news in order to make informed decisions. It is also important to have a proper risk management strategy to minimize losses.
There are many exchanges and trading venues where you can trade cryptocurrencies. It is important to choose a trustworthy and safe exchange and learn about the fees and trading conditions before you start trading.
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