Cryptocurrency Myths: Check If You Still Believe Any Of Them
Unless you are an experienced crypto expert whose social circle is limited to people with ultimate understanding of the subject, you must have asked or answered questions like: ‘Is crypto 100% anonymous?’ or ‘Will regulation kill Bitcoin?’ Or ‘Is it too late to invest?’
There are many myths and misconceptions concerning Bitcoin and other cryptocurrencies, some of them based on city folklore and others rooted in the complexity of the technology.
We are going to consider the most popular Bitcoin legends that are still widely accepted. You might find some of your own crypto-related beliefs debunked. It’s a good thing though — making sound decisions is easier if you have a clearer picture of what is really happening in the crypto space.
Myth #1: Bitcoin/Crypto is backed by nothing
There is nothing behind Bitcoin. Crypto is backed by nothing. Cryptocurrency is an illusion. Bitcoin is a bubble/tulip fever/gold rush. How many times have you heard or read something like that — both from non-techs and financial gurus?
The Bubble myth is deeply rooted in the misconception that if you cannot touch or hold anything, it has no ‘real value’. Though people finally got used to rely on banking cards (how many of us still carry enough cash in our wallets?), they stay skeptical about crypto and expect it to turn into a pumpkin any moment. Or, rather, to nothing. Decentralization and lack of government control makes the public image of cryptocurrencies even less credible.
Basically, it is not true. Crypto is not backed by ‘nothing’. It is backed by mathematics and mutual trust and ruled by supply and demand, just like fiat money. The fact that Bitcoins are not coins, but records does not mean they are fake. Or a bubble. Or anything they have been called by haters.
By the way, if you still think that fiat money is backed by gold, you are wrong. The traditional currency value is guaranteed by the power of the government issuing it, and not by its worth in gold. Can you touch this power or store it in a safe place?
‘No’ answer doesn’t make your dollar a bubble, does it?
Myth #2: Bitcoin is a Ponzi scheme/pyramid
Another popular myth associated with Bitcoin is that it is a Ponzi, or pyramid scheme. For instance, former Israeli Prime Minister Ehud Barak, who favors blockchain technology in general, called Bitcoin a Ponzi scheme. This negative view is shared by the President of Brazilian Central bank Ilan Goldfajn, who explicitly compared Bitcoin to a pyramid scheme. The same term has also been used by some governments seeking to ban crypto — the ‘commoners’ are officially warned against mysterious ‘Bitcoin promoters’ trying to involve them into fraudulent schemes and then lay hands on their hard-earned savings.
Well, either the accusers do not have a clear idea of Ponzi scheme, or they misrepresent facts deliberately. A typical pyramid scheme is a campaign that collects money from investors promising abnormally high and fast profit (in Charles Ponzi’s case it was a 50% profit in 1,5 months). The early investors get money of later investors, and it goes like this until the pyramid collapses, leaving a lot of fresh investors ruined. The founding fathers normally escape with the funds, or at least they try to.
People who argue that Bitcoin is a Ponzi scheme, say that new investors, who buy the currency at a high price, make early investors outrageously rich. Fascinated by the fintech legend, newbies hope for great returns. But as soon as there are no new investors to fuel the scheme, the bubble will burst, and many people will find their digital assets useless.
It looks so convincing, isn’t it? However, a closer inspection reveals this myth is far from the truth. The main features of a Ponzi scheme are three: too-good-to-be-true promise (huge interest paid out weekly or monthly), a constant urge to add new investors to increase your own gains and, finally, the escape of a ‘ponzi’ with the lion’s share of the money.
Can either of them be applied to Bitcoin? Definitely not. Satoshi’s BTCs stay untouched (and there are doubts they will ever be moved). No one lures you into buying crypto or encourages you to add your friends to the network. If you do, it does not makes your richer. And no one promises you anything on a regular basis — you do it at your own risk, in hope that the price will skyrocket.
In fact, investing in crypto has more in common with buying a Picasso painting, than with engaging in a Ponzi scheme.
Myth #3: You need tech wisdom to use crypto
Completely wrong. You don’t need to be a Caltech graduate to become a wise crypto user. Anyone with medium-level computer skills and a high level of personal responsibility is capable of successfully using, trading or storing digital assets.
This ‘tech wisdom’ myth probably owes its existence to the fact that cryptocurrencies and underlying blockchain technology are based on complicated math. True, Bitcoin creators and early adopters were extremely smart guys — just like those who started Internet. Back in the early 90s it was a network for a small number of geeks and gurus, a weird innovation that inspired awe in ordinary people.
Now ordinary people consider you weird if you are not into it.
Getting back to crypto wisdom, there is a massive amount of tutorials teaching you how to create a wallet, how to choose an exchange, how to protect your funds and avoid typical mistakes.
Things have never been easier for beginners.
Myth #4: Cryptocurrencies are easy to lose
The resonant cases of exchange hacks made many of us believe that using crypto is risky and our assets may disappear any time due to any security flaw. It could be so in past, when exchanges were regularly losing much BTCs to successful hacker attacks. Fortunately, the security level has increased greatly since then.
If you want to keep your digital funds safe, just follow the basic security rules (2FA, email encryption, strong password, good antivirus protection, VPN) and make some research before getting an account on an exchange.
It should be added here, that blockchain itself has never been compromised, and it is seen as unbreakable in the foreseeable future. This fact means a lot for those who believe in crypto, and no MtGox hack can change it. After all, if someone attacked you in a dark alley and took all your cash, you would not report it as ‘the dollar hack’. Neither this incident will prevent you from using dollars in the future. Instead, next time you will opt for a better time and safer place, leaving the bulk of your cash at home.
Myth #5: All crypto transactions are anonymous and untraceable
Bad news for those who relied on Bitcoin for drug dealing or tax-evasion — in many cases cryptocurrencies are not completely untraceable. Criminals, who were so enthusiastic about Bitcoins in the beginning, are getting aware that this option is not as safe as they hoped. Mainstream users, though, continue to believe in it.
Being a public ledger, blockchain can only guarantee a certain degree of anonymity. Tracing a Bitcoin transaction is not an easy task, but it is possible if the wallet owner is identified (though the identities of users are disguised, they can be disclosed based on the user’s activity within the network). As for tax-evasion, blockchain keeps record of all the transactions, and they can be viewed and accounted for.
Therefore, if you seek complete anonymity, opt for ‘privacy’ coins like Monero, Dash, Zcash or NavCoin. They feature controversial reputation (for instance, Monero has a rich history with ransomware, cryptojacking, money laundering and some other criminal practices), but it would be the best solution for those who want to make a crypto transaction without exposing their financial details to the public.
Myth #6: It is too late to invest in cryptocurrencies
As the adage goes ‘The best time to invest was yesterday, the second best time is today’. Of course, we all regret we were not there when it started. We should have bought Bitcoins when they were worth a few dollars. Or a fraction of a dollar. We would all be driving Lambos, and living in Hawaii.
Don’t indulge in this kind of thinking. Besides, is not too late to invest in cryptocurrencies. Even if Bitcoin price is falling (some experts still predict that it will grow to $50 000, and now it’s high time to buy), it does not mean that the whole market is going to fold like a house of cards. If Bitcoin is still too expensive for you, opt for less known coins that look promising and credible. We suggest Tkeycoin :-).
Myth #7: Cryptocurrencies are illegal
This myth is another manifestation of crypto paranoia. Unfortunately, it prevents a lot of people from using cryptocurrencies out of fear of violating the law and being punished for it.
Well, we do recommend you to be careful in certain countries like Bolivia or Bangladesh, but in most places, China included, possessing crypto or using it for payments is quite safe. The fact that it is not recognized by many governments does not mean that it is illegal. It means crypto does not exist from the point of view of the law. Say, if someone steals your digital funds, you cannot report the theft to a police (unless bad guys took it with your laptop).
Currently, there is a global regulation process underway. Many states are working on developing an adequate crypto-related legislation. It looks like their approach is aimed at adopting, rather than banning cryptocurrencies.
Crypto is surrounded by many myths and legends. It is natural for a still very young industry based on libertarian ideas and sophisticated technology that looks like a rocket science to most people.
Hopefully, we have cleared some misconceptions out of your way so that you could have a fresh look at cryptocurrencies.
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