06/11/2024
How Cryptocurrency Gets Value
Let’s get into some economics! Think about supply and demand – if there’s a lot of something, it may not be as valuable. On the flip side, if there’s only a small amount of something, it’s more valuable. The same rings true about some cryptocurrencies.
Think about the money you’re used to, whether it’s in your wallet or bank account. It’s likely physical money issued by the government, like dollar bills or coins. That is called “fiat currency.” Fiat currency is government-issued currency that is not backed by a physical commodity, like gold or silver. Instead, the government backs the currency it issues, and retains the ability to levy taxes. The value of fiat currency is related to supply and demand, and the stability of the government that issues it. Since fiat money is backed by the issuing government, instead of a stockpile of gold or silver, it can print and produce more supply. However, it must be careful not to print too much, otherwise this can result in hyperinflation. Which hyperinflation is rapid, excessive price increases in the economy.
On the other side, commodity money has