Image by BTC Keychain
Any new innovations that break through existing conventions often invite skepticism. We rode on horses before metallic chariots came around. Video was thought to kill the radio star. Even the US dollar was once pegged to gold.
While we’ve seen Bitcoin and other cryptocurrencies making the news in mainstream media and online forums, many people often inject opinions that are backed by misconceptions.
Let’s bust some of these myths.
1) Cryptocurrencies are not backed by real assets, hence they don’t have any real value
A gold-standard 1928 one-dollar bill. Source: Wikimedia
The US dollar was once pegged to the price of gold. When President Roosevelt weaned the currency off the gold standard in 1933, the US dollar has essentially been backed by nothing since then. Yet, the value of the currency persists through the trust and faith people have in the currency.
Cryptocurrencies share a similar fate as well. As long as there are sufficient people who believe in their intrinsic value, the cryptocurrencies will continue to have value.
2) Cryptocurrencies are used by criminals, therefore they're bad
While cryptocurrencies like Bitcoin has gained a notoriety thanks to the widely reported Silk Road trial, the truth is, criminals of all creed have used and will continue to use fiat currencies like the good ol’ greenback.
In the US alone, drug users spend about $60 billion dollars a year. And cash makes up most of that staggering and sobering amount.
No matter the form of payment, criminals will find a way to use it.
3) Cryptocurrencies can be shut down by the government
As cryptocurrencies like Bitcoin are decentralized, there is no specific person to arrest or office to raid. In fact, it would be nearly impossible to obliterate cryptocurrencies unless the entire Internet infrastructure is shut down.
4) Cryptocurrencies are illegal
While this may be true for Bitcoin in some countries like Bolivia and Russia, many countries have started to accord legal status and regulate it, such as Brazil, Canada, and the United States. A Wikipedia page also lists the legality of Bitcoin by country.
5) Cryptocurrencies are a huge Ponzi scheme
The face of the original Ponzi scheme. Source: thierry ehrmann
The definition of a Ponzi scheme is “a fraudulent investing scam promising high rates of return with little risk to investors”, according to Investopedia.
The reality is, Bitcoin’s creator(s), Satoshi Nakamoto, has never made such a claim. Speculators were the ones who increased Bitcoin’s demand to a feverish high of $1,124.76 in November 2013 before it crashed down to about $200 - $300.
On the other hand, while not exactly a Ponzi scheme per se, altcoins are often susceptible to pump and dump schemes where the group involved in one would make a quick profit at the expense of another. It’s wise to be wary when venturing into altcoins.
6) Cryptocurrencies can be hacked easily
While cryptocurrency wallets have been attacked in the past, security around these wallets has continued to improve.
For instance, the blockchain itself, a public ledger of all Bitcoin transactions, has never been hacked. Bitcoin itself is considered unbreakable in the forseeable future.
An analogy that’s often used is this: just because someone has mugged you, this doesn’t mean that the US dollar has been hacked. The same applies to cryptocurrencies.
7) Cryptocurrencies are untraceable
Because cryptocurrencies like Bitcoin are perceived to be commonly used by criminals, people assume that cryptocurrencies are some kinda untraceable magic.
This cannot be further than the truth.
As the blockchain is a public ledger, anonymity exists only to a certain degree. As long as the owner of a Bitcoin wallet address is identified - and this can be a difficult endeavor - transactions can be traced.
A recent example would be from the Silk Road case, where the FBI has traced Bitcoin transactions to Ulbricht’s laptop.
8) No merchant would ever accept cryptocurrencies
A Bitcoin believer. Source: scottks
With a growing number of large merchants that accept Bitcoin, the cryptocurrency has furthered its legitimacy. Some of the large companies that accept Bitcoin include:
Many of these merchants use Bitcoin processing partners to help convert Bitcoin into US dollars.
With these myths out of the way, hopefully this clears up some of the misconceptions that surround cryptocurrencies. Do share with us at the comment section below some of the myths that you know of.