A quick Singaporean’s guide to cryptocurrency and the factors affecting its price

Asian countries have an instrumental effect on affecting the cryptocurrency market and the trade surrounding it. Japan, China, and South Korea have already made a significant impact on the cryptocurrency market. Now, Singapore has got into the race as well, with ambitious plans of becoming a smart financial center.

The growing acceptance of cryptocurrency in Singapore has made it an up and coming destination for companies that want to raise funds using blockchain technology. The cryptocurrency market in Singapore has observed a hike in the initial coin offerings, that shows the market in Singapore is on the rise. This increase in interest among Singaporeans calls out for a quick Singaporean’s guide to cryptocurrencies.

In this article, we’ll take you through the basics of cryptocurrencies and the factors that are affecting its prices.

What is cryptocurrency?

Cryptocurrency is a digital currency that is designed to be used as a medium for exchange using blockchain. It uses strong cryptography to facilitate secure financial transactions and verify peer to peer transactions.

Cryptocurrencies are decentralized in nature and work through a digital ledger technology that serves as a public financial database. As cryptocurrencies are decentralized, there exists no control of centralized authority over the digital transaction. But, the transactions are governed and verified by the process of crypto mining. Crypto mining is the process in which transactions, made in the form of digital currency, are validate and add to the blockchain digital ledger. Cryptocurrency miners perform the verification with the help of mining software. When a digital transaction is made, cryptocurrency miners are responsible for authenticating the transaction and adding this information in a digital ledger.

While most of the world is embracing the concept of digital currency with open arms, it still seems that many are facing difficulty in understanding the difference between cryptocurrency and fiat currency. Also, there is a lot of hesitation in accepting cryptocurrencies as official currency. For instance, the monetary authority of Singapore has recently stated that whether or not businesses accept cryptocurrencies for the exchange of their goods is their commercial decision. The MAS will not intervene in trades involving cryptocurrencies.

This increase in interest for cryptocurrency calls for shedding some light on the difference between a fiat currency (Singaporean dollar) and cryptocurrency.

• A fiat currency is a legal tender issued by the government whereas cryptocurrency is neither a legal tender nor back by the government.
• A fiat currency transaction is monitoring by the monetary authority of Singapore whereas a cryptocurrency transaction is overseen by the peer to peer network.
• Unlike fiat currencies, there is a limited supply of cryptocurrency. As the demand grows for a particular type of coin, the supply is increase.

Despite the hesitation to switch from a fiat currency to a cryptocurrency, there are instances where people are embracing it. What makes cryptocurrency so desirable? What advantages does it have over fiat currency? Here are few advantages of cryptocurrency over fiat currency that is leading to a growing interest in the former:

• Cryptocurrencies are digital currencies that cannot be counterfeit.
• Cryptocurrencies allow accountability in transactions. This prevents theft and enables the cryptocurrency holder to keep his details safe.
• Cryptocurrency comes with the feature of smart contracts that eliminates the involvement of centralised third parties in transactions.
• Fiat currencies differ from country to country, and they belong to a particular nation, whereas cryptocurrencies are uniform all over the world and do not belong to one specific country. This helps in facilitating cross-border transactions.

What are the factors affecting cryptocurrency prices?

The imbalance between the demand and supply affects cryptocurrency prices. As the supply of any currency is determining by the need for it and the supply of it, same is the case with cryptocurrencies. When the market for a specific type of cryptocurrency goes up, there is an increase in its price. Other factors that affect the cryptocurrency prices are:

• Perceived value

The perceived value of a cryptocurrency refers to its deemed value. When there is a collaboration or partnership with credible companies, there is an increase in their value of cryptocurrency.

• Security

News coverage about the theft and exchange hacks of cryptocurrency is leading to a volatility of prices. Circulation of such news can create a negative impression on the investors about cryptocurrencies that, in turn, causes a drop in its prices.

• Stability

The fluctuations in cryptocurrency prices is a concern to many. Due to these fluctuations, a majority of the market may stop accepting a specific type of coin. When such a case arises, the particular currency will lose its value.

• Difficulty level

The prices of cryptocurrency get affecting by the difficulty level of solving mathematical algorithms. The value of the cryptocurrency increases as it becomes difficult for the miners to solve. The more difficult it becomes to solve the mathematical algorithm, the higher is the value of cryptocurrency.

• Trustworthiness

The concept of digital currency is still new to a significant population of the world; as a result, people are not sure about investing in it. While the market for cryptocurrencies grows, the trust of the people in it will also increase. As a result, more people will invest in cryptocurrencies which will, in turn, improve the value of every cryptocurrency.

Though cryptocurrencies promise to remain viable financial investment, buyers and investors are subject to some kind of risks. It is better to learn both pros and cons of investing in cryptocurrency to be on a safer side. Having good information about cryptocurrency beforehand can help you make an informed decision about your investment.

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