Dennis Loos on the Future of Crypto
Regarding the demand and supply of crypto, Loos talked about what drives both factors. He said:
Like anything else, the value of cryptocurrencies is set by demand and supply, just like other daily commodities. Cryptocurrency increases in value when demand rises higher than supply. Each crypto announces its token minting and burning plans. Some, like bitcoin, have a fixed maximum supply. There will only ever be 21 million bitcoins. Others, like ether (CRYPTO: ETH), possess no cap on supply. Various altcoins have mechanisms that ‘burn’ existing tokens to prevent the circulating supply from getting too large. Burning a token implies sending it to an unrecoverable address on the blockchain. The monetary policy of each cryptocurrency differs. Bitcoin supply increases by a limited amount with every new block mined on the blockchain. Ethereum gives a fixed dividend per block mined, but it also pays out for involving ‘uncle blocks’ in the new block, which helps enable the efficiency of the blockchain. Therefore, the supply increase is not as fixed. Some cryptocurrency supplies are authorized entirely by the team in charge of a project, which can opt to circulate more of a token to the public or burn tokens to regulate the money supply.
When discussing the cost of cryptocurrency production and how it affects prices, Loos commented with:
New cryptocurrency tokens are generated through a process called mining. Mining entails using a computer to verify the next block on the blockchain. The decentralized network of miners allows cryptocurrency to work as it works. In exchange, the protocol generates a reward in cryptocurrency tokens and fees paid by exchanging parties. Ascertaining the blockchain requires computing power. Partakers invest in expensive equipment and electricity to mine cryptocurrency. The higher the competition for mining a certain cryptocurrency, the more difficult it is to mine. That’s because miners race each other to solve a complex math problem to verify a block. The cost to mine rises as more powerful equipment is needed to mine successfully.
Can Exchanges Make a Difference?
Regarding whether crypto exchanges can affect the prices of various cryptocurrencies, he responded:
I would say that mainstream cryptocurrencies such as bitcoin and ether trade on numerous exchanges. Almost all cryptocurrency exchanges will list the most popular tokens. However, some smaller tokens may only be available on distinguished exchanges, thus restricting access for some investors. Some wallet providers will put quotes for swapping any set of cryptocurrencies across several exchanges. However, they’ll take a fee, raising the investment cost. Furthermore, if a cryptocurrency is rarely traded on a small exchange, the exchange’s circulation may be too large for some investors.