What Makes a Cryptocurrency Worth Having?
Two questions that seem to be asked most often about crypto currency are, “What is it, you can’t make money out of nothing”, or “Isn’t that just like a penny stock”
Two questions that seem to be asked most often about cryptocurrencies are, “What is it, you can’t make money out of nothing”, or “Isn’t that just like a penny stock”. The concerns of those who inquire are of course are valid, and here these concerns and a few others shall be addressed.
As for the first question, which essentially asks, “why is it worth money and what reason do I have to invest” the explanation may be a little technical. A cryptocurrency is a digital currency that is released via the decryption of an algorithm. As this algorithm is decrypted, chunks of coins called “blocks” are found, like digging through dirt to find gold. When each block is found, the coins contained in that block are released to whomever found them.
“Who finds the block” is different every time. If you’re mining, you may find the next block, or someone else might. This is usually why people mine together, forming what is called a “pool” of miners. In this case, the coins released by the block are spread to everyone who helped mine, even those who found nothing, but a small bonus is given to the lucky individual who actually found the block.
Initially, these coins are worth nothing. No one has ever heard of this coin, and no one has ever purchased or sold it. The coin gains its initial value when the coin is first sold or bought, which is essentially money being invested in that cryptocurrency. From there, the value of the coin is dictated by people buying and selling those coins on exchanges, or selling goods and services in exchange for that currency. This is how a crypto currency first takes on some non-zero value. Now, at this point the value of the coin will change depending on how people trade it, similar to the way the value of the international foreign exchange market fluctuates. There are a number of attributes that will have an impact on the value and overall strength of the coin. Some of these include, what algorithm the coin uses, what type of system is used to generate coins, how active the community is, what systems the coin has or will have in place to encourage people to use it and what features the coin has, the way it is marketed and packaged to encourage widespread adoption both offline and online globally. Essentially, if a coin is strong in all of these categories, you can be assured that the coin in question will succeed given time and public exposure.
Here is where the difference between the cryptocurrency and the penny stock becomes apparent. For a cryptocurrency, most of the attributes that make the coin strong are constant attributes and features. The algorithm of the coin, the type of coin-release system, the features the coin has upon release, and the original marketing campaign are all constant. What this means is, if you buy into a coin that is a favorable algorithm type, has a favorable coin-release system, and has already in place a strong set of systems to make the coin easy to trade, buy, and sell with, and convenient to use, you know that the coin will likely increase in value or stay stable, barring some horrible accident that befalls every single owner of the coin world-wide. Cryptocurrencies are not static objects, however, and there are certain things that change with time.
As for those currencies that do fit the bill for a strong, resilient coin, it is quite likely that these will appreciate over time and become as useful, and in some cases more useful, than regular dollars for daily use, especially with secure digital purchases. It is for these reasons that it is a very intelligent choice to have some of your dollars converted to a strong cryptocurrency, or to mine it yourself.