Bitcoin is the most popular cryptocurrency in the market and has forged a new age of anonymous transacting, including crypto gambling. However, many people have misconceptions about it due to misinformation and ignorance about the technology driving it. Never fear. We are here to explore the myths and reveal the truth about bitcoin.
Truth About Bitcoin: Debunking Common Bitcoin Myths
There Is No Intrinsic Value In Bitcoin
Many believe that Bitcoin has no intrinsic value other than its use as a medium of exchange. Logically, any decentralised currency that doesn’t enjoy government support or is not pegged to a commodity will drop in value if the economy suddenly stops.
In terms of bitcoin’s value, it is based on supply and demand. Judging by the growing use of this currency, its value is undoubtedly growing.
While fiat currencies depend on the support fixed by governments, BTC is limited in supply and cannot be manipulated. Crypto fits all the attributes associated with money, and its value is growing exponentially with the increasing number of users it attracts. These attributes include:
- Acceptability: an increasing number of merchants globally accept BTC and other cryptocurrencies to trade.
- Scarcity: A currency will grow in value when it is in limited supply. Since only 21 million bitcoins will ever be mined, this limited supply will ensure its value doesn’t diminish.
- Interchangeable: The currency can be traded against other cryptocurrencies and fiat currencies.
- Transferability: Bitcoin is powered by blockchain technology, facilitating a quick, easy, and cost-effective way to transfer funds internationally.
- Durability: Since it is stored on decentralised networks, it ensures durability provided those decentralised networks remain active.
- Divisibility: You are not forced to buy an entire BTC and are entitled to purchase it in fractions to suit your pocket.
Bitcoin Is Illegal
Many people are apprehensive about bitcoin as they are under the impression that it isn’t legal tender.
Legal tender in the US consists of bills and coins issued by the government. This does not, however, render the crypto illegal because the government classifies it as a virtual currency. The US Financial Crimes Enforcement Network also recognises it.
In looking for the truth about bitcoin, know that it is perfectly legal and used in the digital space for trading, shopping, and online entertainment, such as crypto gambling.
Bitcoin Encourages Illegal Activities
Due to the anonymity associated with trading it, many people have the impression that bitcoin encourages illegal activities and helps traders in the black market. As much as this is possible, many more instances of illegal activities are prevalent with fiat currencies globally.
Illegal activities are not isolated to a currency but rather to the nature of the illegal activity and elements that trade in that manner. Laws and rules regulating illegal activities through fiat currencies exist, and plans are in place to ensure that similar laws are enforced in the digital space.
As the industry progresses, improved tools and resources are employed to prevent illegal activity. Crypto businesses and banks today have compliance teams that have successfully used these tools and resources to understand the different types of digital crime better. This is especially helpful in identifying the risk to their institutions, safeguarding themselves, and remaining compliant.
The use of bitcoin for illegal activities is no more than any traditional fiat currency. Compared to currencies such as the US Dollar, BTC is used far less often for illegal activities.
Bitcoin Facilitates Tax Evasion
In looking at the truth about bitcoin, users agree that transacting with the currency can be likened to transacting in cash, and those transactions eventually get taxed successfully. While countries like Holland and South Korea don’t impose tax regulations on cryptocurrencies, other countries like Spain proactively address tax obligations to users who trade.
Crypto users’ tax obligations depend on how their country views digital assets. While the US and UK perceive cryptocurrency trading as a capital gain, countries like Germany determine the tax obligations of crypto users on whether they plan to purchase or sell.
It must be noted that the increase in regulations is great news for bitcoin and decentralised networks. This is because regulations have increased the authorities’ trust in cryptocurrencies, leading to an expansion.
The Currency Is Available For Free
People who don’t understand the mining process have the misconception that bitcoin is distributed freely. It is mined in a computing resource-intensive method that validates transitions through blockchains. These are ledgers of the previous transaction history.
The miners who process and provide verification of transactions are then rewarded with bitcoin as fees paid for mining. Like any other fiat currency, it costs money to make money, and BTC is no different.
It Cannot Be Used For Point Of Sale Transactions
It is possible to use bitcoin for point-of-sale transactions, although the verification process can take up to an hour. This is to safeguard the owner of the crypto from not double spending on a single transaction. However, e-commerce traders who transact in Bitcoin don’t mind waiting for their transaction verification, as this ensures that they have not committed to a double-spend for their purchase.
Vendors can mitigate this further as they can also accept unconfirmed transactions by listening on the network or using a company to avoid double-spend transactions. This process is quick and efficient and vastly reduces the wait time.
BTC Is A Massive Ponzi Scheme
A Ponzi scheme can be described as a type of fraud that pays an investor returns with funds derived from newer investors instead of using funds derived from profit. The truth about bitcoin is that it is an open-source, peer-to-peer currency, and there is no central authority to direct such an elaborate scheme.
While trading pioneers enjoyed superb returns, these were not at the expense of the traders who joined the party later.
Bitcoin is not controlled by any investment company, does not have central authority managing processes, and does not have a regulatory body that controls production or consumption on the blockchain.
It can be generated by anyone using the blockchain system, and the individual is at liberty to buy or sell any number of bitcoins at any given time with a centralised authority to report to.
New BTC Will Not Be Generated Once 21 Million Have Been Mined
Although no more BTC can be generated after 21 million have been mined, the network will still need to be protected. Despite incentives for mining weakening, generating new blocks is important to provide the publicly available, network-distributed ledger of transactions.
The blockchain will not be stagnant as profit can still be attained through transaction fees. Moreover, the demand for security will diminish once the reward for mining no longer exists.
Bitcoin Is Easily Hacked
One of the most common bitcoin myths is that it can be hacked, and funds in the network are insecure. Although vulnerabilities in the network include wallet security and occasional attacks on bitcoin-friendly websites, none of these occurrences on the blockchain has led to funds being stolen, protocol exploitation, or inadequacies with the original BTC client.
As is the case with all types of new technology and the truth about bitcoin, the best security options are always being evaluated and improved. Reputable providers of digital wallets are quick to ensure that their platforms adhere to the strictest security protocols to prevent hacking incidents and safeguard their users’ private keys.
Users must be proactive and enable further security measures, such as strong passwords and two-factor authentication. The bottom line is that the technology has never been hacked, and there is an extremely low likelihood that it will be hacked in the future.
Cryptocurrencies are extremely safe as long as cybersecurity is taken with the seriousness that it deserves. Scams and theft exist, but that has little to do with the safety of using bitcoin. Usually, hackers’ most undesirable activity is due to user negligence or cybersecurity vulnerabilities in cryptocurrency exchanges.
Bitcoin And Blockchain Are The Same Thing
Blockchain is different from bitcoin. While the latter is a cryptocurrency, blockchain is a distributed ledger technology that the currency runs on.
Bitcoin would represent a car, and blockchain would represent a road that the car uses. Blockchain enables information to be stored in a decentralised database.
Cryptocurrency is the incentive offered by the blockchain to miners that develop the network. While blockchain can exist in forms other than cryptocurrency, crypto rarely exists in forms outside of a blockchain.
There Is Total Anonymity When Trading
Although there is an element of anonymity when trading with bitcoin, these users do not enjoy total anonymity. Whenever traders engage in a payment transaction in the network, they store a pattern in their blockchain.
Moreover, traders must divulge their details for record purposes when they need to use exchange services. This ensures that there is indeed a paper trail of BTC users within this decentralised network.
As opposed to being anonymous, it can be thought of as pseudo-anonymous. Transactions of all types are stored on the public blockchain along with the address of those specific wallet types used.
Despite no identifying personal information being displayed on the blockchain ledger, all one would need to do is to ascertain the owner of a specific digital wallet to discover the individual responsible for transactions from that address.
In light of this, Law Enforcement has an avenue of tracing transactions and identifying the owner of a specific address. This is intended to mitigate illegal activity on the decentralised network.
Bitcoin Is Expensive
Bitcoin’s exchange value is thousands of US dollars for a single token. Although that may be the case, users can purchase fractions of one to suit their pocket.
Similar to fiat currency exchanges, BTC can be exchanged in fractions. A smaller unit of a bitcoin is referred to as Satoshi. Traders who want to trade in the crypto are free to use Satoshi on the platform.
It Is A Volatile Currency
Markets often behave in patterns of fluctuation where commodities fall and rise in trends. Bitcoin has, however, shown remarkable stability since its introduction, which explains its exponential growth. Although it did display volatility in its initial stages, the currency has maintained great stability in the past six years.
Crypto Users Are Easy Targets For Fraud And Theft
Many people who make bitcoin transactions are gripped with the fear of losing their money purely due to the vulnerability of their personal information. There is a misconception that currency compromises an individual’s privacy.
This couldn’t be further from the truth as it offers a greater level of security for payment transactions when compared to payments facilitated through fiat currencies. Using a sophisticated blockchain system makes it almost impossible for unscrupulous elements to access a person’s personal information and exploit them to steal their funds.
Bitcoin Consumes Too Much Energy
While traditional financial institutions use energy to deliver services to clients and manage staff, transportation, back-office services, and security protocols, BTC uses significantly less energy for its operations.
Traditional financial institutions use copious amounts of energy in their daily operations, while bitcoin networks are much more energy-efficient and use a fraction of that energy quota.
It Cannot Be Used For Online Shopping
Many online businesses accept currency as a method to pay for online purchases. These companies include Microsoft, Shopify, Expedia, and Overstock.com.
Many countries have now introduced Bitcoin ATMs that help individuals to exchange fiat currencies and Bitcoin to accommodate the growing number of Bitcoin users globally. According to Statista, 11,497 ATMs are available throughout the world currently.
The Bottom Line
It is evident that many of the common myths about cryptocurrencies are built on fear and apprehension. There will always be misconceptions that circulate, but always double-check the source of any information you come across before making your mind up.