Cryptocurrency—you know it, your mother has heard of it, and your father’s neighbouring distant cousin probably thinks it's some kind of millennial toy coin that has zero value. Myths circle around things that are relatively new and it comes as no surprise that crypto isn’t exempt from this. Just when boomers have finally acclimatized to the notion of doing things online, here comes another modern breakthrough in the form of digital coins.
Bitcoin and the concept of crypto in general have had their share of exaggerated stories that circulated the media. During its early years, bitcoin was often dubbed as a Ponzi scheme that promises high rates of return with little risk. A high percentage of illegal activities caught online that used the digital coin dragged bitcoin’s name as a currency used by criminals in the black market. Times were dire in the early stages of crypto, with sceptics left and right expressing their distrust towards this life-changing technology that continues to modernize industries today.
Before going deeper into these misconceptions, take a look at what digital assets are in the first place.
At its core, crypto is a decentralized digital asset secured by cryptography that can be bought and exchanged online through the Internet. With the use of blockchain technology, all transactions are stored in public ledgers checked by every user that takes part in the system. This makes crypto decentralized, transparent, and immune to censorship and government interference.
No central form of authority oversees and controls the system. Instead, each user that takes part in the system keeps a copy of the public ledger that contains the list of sales. These validators called ‘miners’ confirm each record and add them to the growing blockchain, passing each data and continuing the record of transactions.
Another nice facet of crypto is its security. It may not be backed by any form of central authority but it is upheld by a much more reliable system: math. Algorithms in cryptography secure the data contained within the blockchain. Cryptographic techniques such as private-public key pairs and hashing functions are what safeguards the history of transactions, making them unalterable.
Satoshi Nakamoto forever changed the way we view and trade money when he invented the world’s first crypto, bitcoin. It takes away the middleman from transactions, slicing its cost and time of process by more than half. This appealed to a lot of people in the beginning, though locked within their own niche communities.
However, bitcoin now continues to enter the mainstream with each passing day. Even with its constantly shifting prices, it's becoming a more common form of online currency which is exactly what it’s designed to do. Across Europe and Northern America, you’ll find hundreds of Bitcoin ATMs and stores that accept payment using crypto.
The age of monetary revolution has been going on for some years now. Though still in its early phase, crypto continues to shake up industries with their life-changing technology and people are just starting to get into it. Who doesn’t want to do things in a cheaper and faster way?
Even with crypto’s promising future, misconceptions still run amok in the rumour mill about its supposed evil aspects. As is typical when it comes to new ideas, people can be averse to accepting things with open arms. This irrational yet understandable fear of the unknown gives birth to a lot of misconceptions surrounding this cutting-edge technology. See for yourself whether these myths are nothing but fiction or if they hold a fraction of truth in them.
This is one of the most common misconceptions surrounding bitcoin or crypto in general. Lots of people, fueled by the media, believe that digital coins are mainly used by people performing online illicit deals. Because of its pseudonymous nature and lack of regulation from the government, it’s clear why digital coins look enticing to criminals.
In an article published by Forbes in 2018, they mentioned an earlier study saying that half of bitcoin transactions were associated with dirty activities. A blockchain analysis startup called Elliptic reveals that a huge number of illegal business was conducted through the bitcoin blockchain from 2013 to 2016.
While these facts cannot be denied, it’s also important to note that these kinds of schemes are not only exclusive to crypto. Compared to the number of criminal activities done with fiat currencies ever since the invention of money, this number certainly cannot compare.
Additionally, it’s worth remembering that it’s the activities that are illegal, not the coins used to deal with them. Anyone can buy crypto and it is entirely up to those people how they are going to use it.
The earliest patrons of crypto just happened to be con men as is usual with any kind of new technology. Who knew felons are such great beta testers? But that was during bitcoin’s early days when it wasn’t popular yet and mostly hid in the dark web. Now that more people are using it, criminal activity using bitcoin has actually gone down to 0.1%.
Some are not happy when they learn that cryptos are not overseen by a central body of authority. Coming from the traditional monetary system formed by trust in governing bodies, this is perfectly understandable. They don’t feel secure by the fact that there is no bank backing up all the sensitive data passing through the web of the Internet.
Some people fear that unlike banks, cryptos don’t have a hotline they can call if things go awry and technical failure arises. There’s also a myth that the government doesn’t acknowledge and regulate cryptos, making it prone to hacking and all forms of tampering.
The lack of a safety net easing the public’s rational worries is essentially what led to the birth of this misconception.
That is, however, not entirely true. Contrary to what others think, governments do recognize the power and potential of the blockchain industry. Different nations vary in terms of reaction to the rise of this new technology, proven by the existence of both strict and favourable regulations.
Some countries embrace crypto with open arms, letting its growth flourish on its own with little to no restriction. Take Japan, for example. They are very forward with their legislative approach, saying that they have no intention of curbing its growth with too much regulations. Japan protects their consumers while promoting innovation.
Other countries have a different and more restrictive approach such as China. They are wary of online schemes that’s why strict laws that protect its people from illegal crypto fundraisings are held in place. Digital asset exchanges who don’t comply are then blocked by the government.
In the United States of America, however, the use of crypto is well promoted. There are favourable regulations in place that exempt cryptos from state security laws, money transmission statutes, and other state regulatory requirements. Additionally, as reported by the SEC in 2017, “virtual” organizations are subject to federal securities law. The IRS considers digital coins as property and not currency so they can be taxed properly.
On the other side of the Atlantic ocean, European countries hold a positive outlook with regards to cryptos. The European Union has an optimistic approach with digital coins. There, bitcoin is considered as a currency instead of a commodity and its transactions are exempt from VAT.
Other people fear that crypto is only a hyped-up episode that will eventually fall out of grace once the government decides that the show is over. Countless websites have already declared again and again that ‘Bitcoin is dead’. At present, bitcoin’s death has already been declared 378 times. Like a zombie, however, it remains to be undead.
As opposed to this misconception, governments cannot shut crypto down because they run on blockchain technology that is decentralized in nature. There is no central point that they can declare close and out of business.
Cryptos uses a distributed ledger of transactions instead of storing them in one location. That’s why it will be nearly impossible to close down the blockchain that is composed of a network of validators spread throughout the world.
This myth probably came from the fall of peer-to-peer file-sharing software Napster in the early 2000s. After issues about the trade or sharing of copyrighted music on its network without proper license and authorization, Napster was shut down by the US government.
People need not fear, however, because the blockchain is not completely like the P2P software. Napster was easily shut down since there are point persons that act as the company’s central authority. This is what crypto lacks. It’s decentralized and the power over the system is equally distributed among its community members.
Of course, you can do whatever you want with your purchased crypto, it’s yours. But that’s depending on which kind of digital coin you bought. There are certain limitations set in place. Each crypto is created with a designated purpose in mind that targets specific markets.
Bitcoin is created to be a digital currency for people to be used when conducting transactions through the Internet. Its more contested rival, Ethereum, offers ledger technology based on the bitcoin blockchain where companies can build new programs. Ripple, on the other hand, caters to financial institutions by providing a network for banks and money providers.
The fact is, not all coins are created equally. Also, they do not have the same value as you might see on digital currency exchanges such as BTCXE. So yes, in a way, you can do whatever you want with crypto provided that they are within the limitations set by each coin’s designated use.
Some people believe that just like any data that goes through the Internet, deals with crypto can easily be compromised. Sceptics believe that hackers and scammers are always on the lookout for opportunities to steal your identity or credit card data. If you’re not familiar with how blockchains work then you’ll probably think the same.
People tend to be extra cautious when putting their financial data online and for a good reason. Good thing crypto is protected by cryptographical functions used in a blockchain. This is what makes digital assets more secure than banks when it comes to protecting data.
A crypto consists of a network of peers who fact-checks every single transaction that goes on the blockchain. A blockchain is a public ledger kept by every user of a network. It contains the complete history of transactions ever since the blockchain started running.
Each block contains two hashes of data: the first one consists of the data from the block that preceded it and the second hash contains new data from the newly minted block.
Simply put, whenever a block is added onto the chain, the data of the previous block is passed onto the new block, creating a chain of transactions.
With the blockchain’s unalterable and irreversible function, no one can input whatever they want and alter the information contained in the list. Once a transaction is confirmed, it’s already set in stone.
What makes blockchain technology so secure is the fact that instead of just a single point confirming and storing all the data, all transactions are validated and agreed upon via a consensus of a network of people.
So, if ever someone wants to alter something from the blockchain, like increase the number of bitcoins sent to a specific address, for example, they have to change the data from millions of computer programs owned by millions of validators spread throughout the globe. After all, there is safety in numbers.
As crypto entered the mainstream and its popularity rose higher and higher, myths both positive and negative rose as well. Though some hold a bit of truth in them, others are purely fictional. The way media portrayed bitcoin as a get-rich-quick miracle helped give birth to all these misconceptions as well as the paralyzing fear of the unknown or something relatively new. That’s why it’s important to do your own research and get to know what something really is about before you believe anything you see online.