How Cryptocurrency Prices Work, Explained

1.

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 government has 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.

Cryptocurrencies, on the other hand, are not controlled by a central government or authority, and most regions do not accept them as legal tender. Cryptocurrencies will also generally have a fixed supply and, therefore, the devaluation of cryptocurrencies through inflation is mostly nonexistent.

Other than that, both fiat and cryptocurrency values are supported by similar characteristics. Both methods can be used as a medium of exchange to buy products and services, and both methods have a relative store of value.