Cryptocurrency is most likely the future of our world. We’ve digitally progressed a lot, but the truth is that we haven’t even touched the tip of the iceberg, as we still have a long way to go. Our current financial world moves billions of dollars throughout the cross-sections of established lines of finances. Every day, millions or even billions of transactions of monetary nature take place in our world.
But a lot of it is very flawed and often faulty. This is because the financial system that we currently have is predominantly that of physical currency and other delay-causing nationally recognized currencies.
This delay is usually caused due to an enormously high amount of unnecessary paperwork that lays a mat of high friction, causing our transactions to be slower than they actually can be. A large percentage of financial institutions are the victims of cybercrimes every year.
It can be very debilitating to the financial world if all the money goes unaccounted into undeserving hands. This begs the question of why our economic system is so incompetent to protect its funds?
It mainly is because our current financial world is built on a cluster of traditionally established companies that primarily operate on physical money under a small guise of digital currencies. This is where cryptocurrency steps in. Go URL to know more about your crypto newsletters every single day. Now that being said let’s get in!
What Is Cryptocurrency
Like we’ve previously stated how our financial system is failing at handling more prominent and more complicated transactions effectively, right? A large amount of paperwork and formalities that go into our traditional present transaction system causes many delays and problems for people worldwide.
There is a growing need for deferred payments as time goes on. To eliminate this very problem, cryptocurrencies entered the financial world. To understand what cryptocurrencies are, let’s split the word into two parts. Crypto means “secret,” and currency is our money.
This cryptocurrency is a type of currency that is entirely virtual and has no trace of a physical presence, such as other currencies that have a fiat presence in the world. This currency is designed using a technology called cryptography, which completely encrypts the data that passes from one person to another.
With a two-party system, cryptocurrencies are encrypted from end to end, with the details and nature of the transaction being known to only the sender and receiver.
How Cryptocurrencies Are Changing The World
Our entire financial world runs on a symbiotic relationship between all parties involved. Let’s say that you have a significant transaction to make to another person using a bank; this now would lead to service charges and whatnot, benefiting the bank as well at your expense.
The increase in financial infrastructure also means a lot more nooks and crannies for the institutions that run this whole thing to exploit people in a completely legal way. If you want to know more about crypto and how it changes the world click here.
When established and recognized unanimously all over the world, cryptocurrencies are going to change the way people view the financial world. First off, the transactions involved in cryptocurrencies are safer and encrypted than other forms of commerce.
In our current economic infrastructure, many intermediaries oversee our transactions under the guise of “safety and security.” Still, it can be a lot more of an impediment to us than actually helpful. Companies are steadily investing in blockchain and cryptocurrency technologies because of their cost-effective infrastructure, which is not available in the physical world.
Now that we know the various uses of bitcoin and how it’s affecting the world’s financial structure, let’s take a look into what the multiple determinants of bitcoin’s price are :
Factors Affecting The Price Of Bitcoin
1. Market Forces
We know that the structure and how bitcoin works are different from traditional currencies, but it is nevertheless a technology devised to suit our market’s design. This means that just like every other currency out there, bitcoin is also influenced by the supply and demand of investors around the world.
The law of demand is straightforward, when price decreases, demand increases, and vice versa. The more bitcoin that is in supply will ultimately decrease its price, and the lesser it is in store, the more of it will be demanded. However, the collection of bitcoin isn’t as simple as it is with regular currency.
Economies print more money with the notion of an inflationary spiral which can be imminent; however, bitcoin only has a limited amount of coins pumped into the market.
2. Other Cryptocurrencies
We need to understand that bitcoin is not the only cryptocurrency on the market. There have been many new cryptocurrencies that are coming into existence, such as Ethereum, Ripple, etc. The mere demand of bitcoin’s market forces is not the only factor in determining its price. The competitive currencies that are now emerging into the market are now taking up the demand for bitcoin as well to a certain degree. It is basic logic that if other currencies are beginning to take precedence globally, the value of bitcoin will decrease as well.
3. Cost efficiency
You cannot just own bitcoin straight out of the blue. There are two main methods that you can get your hands on bitcoin: mining and buying. You can either buy the bitcoins in exchange for real money, or you could mine the bitcoins yourself one bite at a time.
Ultimately buying also is a result of bitcoin being mined. And trust us, bitcoin has a lot of cost in its production. It takes a considerable amount of electricity and processing power to be able to mine bitcoin over time.
And this is one of the biggest criticisms about bitcoin, that it leaves a large carbon footprint. This high cost of production makes it lower in terms of cost efficiency and hence can be higher in price to own.