Cryptocurrencies share similar laws of economics to that of the traditional money. In other words, the U.S. Dollar, Bitcoin, Ethereum and the like redeem their value to how their creators intended it. That begs the question: how do we give it value and price? The short answer is that of supply and demand. But, if we go deeper, we can see what drives people to exchange and take part in the cryptocurrency world at such astonishing rates. Discover that it may not be as simple as it seems on the surface in the world of cryptocurrency price setting.
One thing needs to be clear before going any further. There is a fine line between a virtual coin’s value and the determined price. They are not the same, and never will be. To be clear, different markets drive prices up or down at any given moment. This is where supply and demand come in to play. For example, if Ethereum is selling in large amounts on the Luno Exchange, prices will drop suddenly. On the other hand, if it is being bought up like the raiding of a supermarket before a storm, prices skyrocket. Of course, the intensity of the hills and valleys, so to speak, of the price charts vary; but, the principal remains the same. At least know that price and value are not one of the same in economics.
It is digital and new. And, we mean completely new. Nothing exactly like cryptocurrencies has ever set the stage in the history of humankind’s various money creations. This means assigning value to it can be difficult at first. Nevertheless, it has been done. The starting point is at realizing there is a scarcity of various cryptocurrencies. That may seem like the answer, but it is not. Unfortunately, regarding simple valuation, it’s not that easy. According to Lyn Alden’s Investment Strategy website, “any programmer can make his or her own cryptocurrency, with the hard part being that it’s worthless until enough people recognize it, adopt it, and begin to trade it around”. This points to how a cryptocurrency will only be of high value if it is socially popular. Namely, the giant coin known as Bitcoin. Bitcoin’s value surged as no other during 2017, and it was because it gained enough traction and social acceptance through recent years. Obviously, many speculate it is a bubble ready to pop. But, now it’s a chance for many other coins to the ride the wave bitcoin has provided them. This has opened a new window of opportunity for coins like Ripple, Litecoin, and Ethereum to take the floor and be accepted into the hearts of many. In turn, their values will rise too – along with the natural lows followed by highs again, unquestionably.
One of the side effects of cryptocurrencies’, such as Bitcoin’s, value shooting through the roof is the intense energy use. Stated by this post by Ars Technica, “Naturally, this is leading to concerns about sustainability. Eric Holthaus, a writer for Grist, projects that, at current growth rates, the Bitcoin network will ‘use as much electricity as the entire world does today’ by early 2020. ‘This is an unsustainable trajectory,’ he writes”. Some mining businesses’ electrical use is so extreme that their energy output outweighs that of small, underdeveloped counties. Clearly, the energy consumption is growing to be out of this world, but not to worry. Soon, within the decade, it is projected that a dramatic decrease in energy consumption will be made by miners worldwide. From the fact that coin’s value bubble up, then collapse, the miners’ electricity consumption will follow that directly as well.
The Future Is Not as Gloomy as We Think
Although that cryptocurrency energy consumption is on the brink of damaging a great deal to the world’s atmosphere, it is not as bad as predicted. Following the natural rise and fall of cryptocurrencies, including Bitcoin, virtual mining companies will follow suit. Simply stated, when the demand for currently popular coins fall, energy consumption always falls. Regardless, improvements in technology for a more streamlined and efficient methods to run super computers are ever in rapid progress. By, 2020 the field of digital cryptocurrency mining is going to be a much more peaceful realm than we currently envision.
In a nutshell, the pricing, valuation, and energy demands that cryptocurrency has given birth to are integral to each other. When one rises, they all relatively rise. Certainly, they are not all the same, but they share many qualitative aspects. The least one can do to put their faith and some commitment to learning the ways of cryptocurrency economics. All it takes is time and effort to learn more in-depth which coins you are interested investing into, how their valuation is affected, and what it costs in terms of electricity to mine them.