Not All Cryptos Are Scarce Like Bitcoin
The Differences Between Crypto and Cash
From volatility to protection and supply to control, cryptocurrencies are very different from cash. Bitcoin and cryptocurrency have been dominating market conversations in recent months with people either jumping on the bandwagon or trying to understand what all the fuss is about.
Scarcity and Value
Cryptocurrencies such as Bitcoin are finite with some economists comparing them to digital gold as a result. As output rises the prices of goods are typically driven down by supply and demand. However, with a finite supply, the price should theoretically rise.
Not all cryptocurrencies are scarce, however. Some cryptocurrencies have an infinite supply, while others have a supply that is capped at a certain number. For example, Bitcoin has a supply cap of 21 million coins. This means that there will never be more than 21 million Bitcoins in circulation.
The scarcity of Bitcoin is one of the things that gives it value. Because there is a limited supply, Bitcoin is seen as a store of value, similar to gold. This is in contrast to fiat currencies, which can be inflated by governments printing more money.
The scarcity of Bitcoin also makes it a speculative asset. Investors buy Bitcoin in the hopes that its price will rise in the future. This can lead to volatility in the price of Bitcoin, as investors buy and sell the cryptocurrency based on speculation.
Conclusion
Cryptocurrencies are a new and evolving asset class. They are different from cash in many ways, including their volatility, protection, supply, and control. It is important to understand the differences between cryptocurrencies and cash before investing in them.
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