When it comes to the value of cryptocurrencies, it differs from one coin to another. If we take into the perspective the two largest crypto communities, such as Bitcoin and Ethereum we will see that the background of these two resides in the computational power. On this concept relies the entire system of mining.

When individuals or groups mine some currency they literally give it the foundation on which the network solves math problems in the foundation of the algorithms on which the transactions are based. This is elemental for Bitcoin and Bitcoin-like cryptocurrencies. It is similar with the fiat currencies as well. They are backed in gold. At least they were until 1971, when Richard Nixon eliminated the gold standard for US dollar. Since then, the most important currency globally became arbitrational. This is one of the reasons why Bitcoin was invented in the first place – to diminish the power of the central institutions considering the fluctuation of value.

The computing power is essential, especially when it comes to Ethereum since it still can be mined similar to Bitcoin mining in the beginning. This still holds Ethereum’s decentralization and the proportional value distribution. Generated value afterwards get exchanged for fiat currencies (dollar, euro, pound sterling, for an example), stored or spent on physical goods.

But it is not all so black and white. Basic economy still rules on every market. Since initially currencies are exchanged for “money”, so the rules of supply and demand still dictate the value stored within every cryptocurrency. So, while the demand is raising the potential capital of each miners rise. Once the supply overflows the market and people start selling out their assets the value will hit the rock bottom. People start panic selling, again, boosting the supply on the market. Bitcoin and Ethereum remained stable after more than one crash and it is because of the features they offer for their users. They offer an idea, besides the generated value.


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Posted by Min Park

Blockchain Marketing Specialist / ICON ($42M) / MediBloc ($25M) / BOScoin ($12M) / Krown Media / :0

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