After Bitcoin and Blockchain were born in 2009, they have spawned a wide ranging variety of cryptocurrencies.  And if you’re planning to invest in them, not only in Bitcoin, you’re up for a tough time choosing.

In order to answer this question, we first need to define what a “good” cryptocurrency is.

A Good Cryptocurrency 

It may be difficult to answer this question because of certain reasons.  For one, no one can ever predict the future.  That’s to say that what’s encouraging now can be failing in the future.  What’s a winner today can be a huge loser tomorrow.  Another reason is that a “good” cryptocurrency can vary in definition per person.  Overall, it’s “goodness” depends on what you intend to do with it.

If you want to invest, it’s a good idea to look for cryptocurrencies that can hold and increase their value.  On the other hand, if your goal is to use the cryptocurrency, you may want to one that’s widely accepted.

The usability can be a very crucial factor for the survival of the cryptocurrency.  If the cryptocurrency has a lot of users, it also has a wider potential base of users.  And if it has a wider user base, it also has greater demand.  And, as economics teaches us, demand is crucial for driving prices higher.

A good cryptocurrency is also one that’s easy to get, whether in the process of mining or buying.  For many established currencies, mining is currently exclusive for those who have access to expensive equipment. However, buying them can still be direct.

As for those lesser known digital currencies, mining can be a piece of cake, but there’s lesser circulation for buyers.

Cryptocurrency Price Drivers

Cryptocurrency prices are affected by numerous factors, similar with the prices of currencies and other tradable assets.  Such factors can interact with each other in many different, complicated ways.  But overall, the root is the law of supply and demand. Prices can go up when the demand exceeds the supply, and plummets in the reverse conditions.

Meanwhile, one can say that the primary driving factor for the strength of the cryptocurrency is its market capitalization, or market cap.   In the stock market, the market cap tells something about the rough estimate of a company’s overall price because it  gives you an idea about the value of the company’s outstanding shares.

When applied to a cryptocurrency, the market cap refers to the price of all the outstanding coins, which is acquired when you multiply the supply of coins by the price per coin.

Further, the difficulty of verifying a block of transaction and the energy costs in the mining process are also reflected in the cryptocurrencies’ prices.  Investors also focus on regulatory concerns and security issues.

The Future of Cryptocurrencies

According to the majority of cryptocurrency supporters, digital currencies are the future of finance and will replace traditional currencies and will shift away from central banks and governments.

However, at present, there’s no clear indication of how close or how far this future is, with investors and experts having really no solid favorite among the top cryptocurrencies circulating in the market.  It’s also worth noting that regulators are very cautious in determining how cryptocurrencies can be used.

Steven Hernandez

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