In this blog, we curate relevant and remarkable content related to blockchain, cryptocurrency and the digital economy. This excellent how-it-works piece by Chrisjan Pauw published on Cointelegraph offers insightful information on the mechanism of cryptocurrency prices. Read on.
“How do cryptocurrency prices compare to fiat currencies?
Neither is backed by a commodity like gold or anything with an underlying value.
The biggest difference between cryptocurrency values and fiat money is that fiat currencies are backed by central governments and declared as legal tender. Its value is basically derived from the fact that the central governmenthas stated that it has value and two parties in a transaction put their trust in that value.
Most countries today operate in a fiat currency system, where central banks and monetary reserves control the supply of money and, as such, indirectly control inflation.”