Cryptocurrencies, like other cryptosystems, are issued under highly unique conditions. Their issuance is done under a set of uniquely selected factors, such as; a hard asset that is highly valued and not easily replicated, a highly tradable good that is difficult to counterfeit, a scarce and valuable resource, and a platform that can be used to facilitate trade without the need of centralization. In the case of the latter factor, scarcity and value are the important consideration. Cryptocurrencies have an advantage over traditional money systems in terms of their scarcity. No matter how many times money is printed, the supply is finite.
Cryptocurrencies also offer a unique and powerful convenience factor. They are traded on a peer to peer basis, without the need of a third party. This offers several advantages, the foremost being the fact that it enables communities to establish financial transactions that are free from any kind of third party intervention. Also, unlike conventional money systems, cryptography provides users with the freedom from arbitrary lender or government intervention that is characteristic of conventional money systems. This also goes for the use of Cryptocurrencies, which can be used as legal tender.
In general, most Cryptocurrencies operate on a highly limited supply curve. This is achieved due to the high level of technological complexity that is involved with the design of certain Cryptocurrencies. The most widely used Cryptocurrency, bitcoin, exhibits a maximal supply curve that lies somewhere between two and four weeks. This supply limit is achieved because of the low rate at which new bitcoins are created and the high rate at which new users are attracted into the system. It also follows that after a certain amount of time, more people will start to be interested in buying up and trading in bitcoins, which will drive up the overall market capitalization of this highly useful Cryptocurrency.
Another factor driving up the value of Cryptocurrencies is the relative stability of the exchange rate between major Cryptocurrencies. Unlike traditional commodities and currencies, Cryptocurrencies can withstand drastic changes in the value due to external factors, like economic and political unrest, war, terror attacks and even unexpected disasters or shocks to the economy. For instance, the recent spike in the price of a single Forex currency (the South African rand) was quickly followed by a large fall in the US dollar, which initiated a period of severe global financial uncertainty. The volatility of the exchange rates is a key advantage that Cryptocurrencies have over traditional markets and fiat currencies. But this stability also presents several disadvantages for Cryptocurrencies, including the risk of losing control of an economy and the risk of inflation.
Unlike conventional money, Cryptocurrencies are not issued by central banks. Governments may issue standard legal tender in place of Cryptocurrencies but such instances will only be beneficial to a very small section of society. This problem is greatly aggravated when considering the highly volatile economic conditions that are currently affecting Cryptocurrencies. In order to overcome the inherent risks inherent in Cryptocurrencies, governments and other institutions may issue their own Cryptocurrencies, but this option comes with significant risks. There is also the risk that government authorities may disestablish these Cryptocurrencies, which could result in a chain reaction of negative consequences for the Cryptocurrency system.
Despite the risks associated with Cryptocurrencies, investors in Cryptocurrencies are seeing significant profit potential. One of the many advantages of investing in Cryptocurrencies is the fact that there are a wide range of Cryptocurrencies, each with its own unique characteristics. For instance, compared to the range of traditional physical commodities such as gold, oil and diamond, the number of available Cryptocurrencies is quite limited. This limited number of Cryptocurrencies has made investing in Cryptocurrencies a highly attractive proposition for both short term and long term investors. Many investors also see the benefits of investing in Cryptocurrencies as an alternative to traditional assets.