If you’re new to technology, you may have heard of fintech. Fintech
refers to financial technology and includes those technologies being used in new ways to improve existing services, as well as advance them. Another example of fintech
, and the focus of this article, is cryptocurrency.
What Are Cryptocurrencies?
A cryptocurrency is any digital currency
. These represent alternative forms of payment based on encryption algorithms, which means that cryptocurrencies have a dual purpose as a virtual accounting system and a currency. You must have a cryptocurrency wallet to use it, which can include cloud-based software, stored on your computer, or mobile device. Wallets store the encryption keys that link to your cryptocurrency and confirm your identity. It is critical that these remain safe.
What Are the Risks?
There are concerns regarding the risks associated with cryptocurrencies. For instance, the government does not back this market, which leads to increased risk. Therefore, investment advisors often recommend that the weight of a cryptocurrency in a portfolio should have meaning to the investment, yet not derail long-term expectations because of the higher risk that the investment erodes. Part of the risk is because cryptocurrencies are still considered to be new. As a result, this market is volatile.
Banks or other third parties do not need to regulate cryptocurrencies, which means they remain uninsured and hard to convert into tangible currency. This means it is hard to convert this currency to cash (such as the US dollar or Euro). Moreover, hackers can hack into cryptocurrencies because they have technology-based intangible assets. One of the final concerns is in relation to the cryptocurrency wallet. If the wallet is lost, or access is lost, the investment is lost.
What Is the Relationship Between Blockchain and Cryptocurrency?
To begin with, a blockchain is an open ledger used to record transactions in code and is distributed globally. Transactions are recorded in blocks and linked in a chain. This chain consists of prior cryptocurrency transactions. The group of chains is the blockchain. All people using a cryptocurrency have a copy of the blockchain, which they can use to create a transaction record. As new transactions occur, they are logged and every blockchain copy is updated at the same time. This means all blockchains have the same information at the same time. Prevent fraud using a validation technique. The two most common are proof of work and proof of stake. Both of these methods rely on consensus mechanisms for transaction verification, which means individual users verify the accuracy and validity of the transactions. The majority checks and approves all verified transactions.
New cryptocurrency units are released through mining. Typically, this is done in exchange for transaction validation. Theoretically, it is possible for anyone to mine cryptocurrency, yet it is increasingly difficult in those systems that use proof of work validation techniques. Bitcoin is one example of a cryptocurrency using this technique. This is because the Bitcoin network has become increasingly complicated and requires more processing power. Now, it is often too expensive for individuals to mine it. Moreover, proof of work currencies requires immense energy to mine. Currently, Bitcoin mining
requires 127 terawatt-hours per year for mining, which is more than the annual electricity consumption of Norway.
It is impractical for individuals to earn cryptocurrency by mining in a proof of work system. The proof of stake system has fewer requirements for power in validation because validators are randomly chosen based on how much they stake. It does require that the validator has cryptocurrency already because you have to be able to stake it.
What Are the Best Exchanges?
You purchase cryptocurrencies through cryptocurrency exchanges
. You can trade the most popular cryptocurrencies, such as Dogecoin, Bitcoin, and Ethereum on exchanges, such as Kraken, Gemini, or Coinbase. Cryptocurrency exchanges may have limitations, so it will be important to ensure that the selected exchange supports the right pairing required in cryptocurrency to complete the purchase. For instance, use USD Coin to buy Ethereum on Coinbase. Fees can be high on any exchange.
During 2020, Bitcoin nearly quadrupled in value. At the end of the year, it was valued at over $28,900. By April 2021, Bitcoin doubled from there and the gains were lost by July 2021. By November 2021, the value of Bitcoin more than doubled to over $68,900, then dropped to $46,000 by the end of 2021. As of June 2022, Bitcoin trades were valued at about $31,000 per coin. Despite the price being down by 35% so far in 2022, Bitcoin has seen an extremely high appreciation over the past five years, which could make it a viable investment.
There are many more aspects of cryptocurrency. The points mentioned in this article are some of the most important. While this market experiences growth, it remains a new market, which means that challenges need addressing. This makes working in this industry an exciting opportunity because you will be part of cutting-edge technology, leading to new changes in the finance industry. Changes in the technology industry will also lead to changes in cryptocurrency. In fact, it is highly possible that cryptocurrency will become increasingly popular as technology continues to develop, especially if it becomes regulated by central banks.
As you can imagine, cryptocurrency is a fascinating and complicated aspect of fintech. Working in this field requires training and skill, more than formal education. As a result, learn much of the work required in cryptocurrency and for cryptocurrency exchanges through an apprenticeship, which involves pre-training and opportunity placements to kickstart your technology career in cryptocurrency. When you are ready to begin your journey toward your new career, Apprentice Now
is here to help connect you with an employer. Contact us
to see how we can help you today!