Busting Bitcoin Myths: 6 Most Common Bitcoin Misconceptions

Bitcoin is both the most-widely used crypto-currency in the world and the probably most misunderstood. Ask a person on the street about it and they will either claim to love it, hate it, or know nothing about it.

Most people, however, will tell you one of the many half-truths they’ve heard about Bitcoins from either the mainstream media or a friend. Because this currency is gaining in importance around the world, it is about time we debunked common Bitcoin myths.

Myth 1: Bitcoin has limited supply

Some of the questions that people have Bitcoin is about its validity. Being circulated in the market now, what will hapeen when it’s over? Agarwal states a few facts that will clear the air. Of the 21 million Bitcoins that were mined, 17 million have already been circulated. Every 10 minutes, 12.5 new Bitcoins are added. But because of its limited number and reduction in production, the value is only going to increase. However, all is not lost for those who haven’t yet invested. “Because it’s a number and you can invest in fractions, this means that there are 21 Mn multiplied by .008 Bitcoins available, so there’s enough left to be circulated around the world,” he said.

Myth 2: Bitcoins are not backed by anything!

As Bitcoins are not physical coins, it might seem hard to attach a value to. However, when it comes to digital currencies, things become just a mite more complicated. The idea of traditional, or fiat currencies themselves attach an invisible value to the issued pieces of paper or coins. Transfer this to a digitized version, and that is essentially the same as government issued currencies.

Of course, this brings to mind the question of whether or not the currency can continue despite not being issued by a centralized government. The counterargument, is that instead of being backed by the government, it is instead backed by every single person who utilizes Bitcoin.

Just as how any country currency can be used in its own country, so too is Bitcoin useable in any place around the globe that accepts its value. And with the list of Bitcoin-approved stores increasing day by day, digital currency looks to be growing stronger and more trustworthy.

As long as Bitcoin is perceived as valuable by any other party, it will have the potential to retain its value.

Myth 3: Bitcoin is a Ponzi scheme

This myth comes from a misunderstanding of what a Ponzi scheme is, and what Bitcoin isn’t.

In a Ponzi scheme, the founders trick investors into joining with guaranteed profits. Bitcoin does not make such promises (maybe critics have confused the name with BitConnect!). There is no group of elite individuals pulling strings. The collective profits from the success of bitcoin, which is everyone.

The difference between bitcoin and a Ponzi scheme is who the winners and losers are. A Ponzi is always unsustainable. New money pays old money, and only people who get in first in a Ponzi scheme make a profit. There are clear winners and losers.

Unlike a Ponzi scheme, bitcoin is not a zero-sum game, nor is it win-lose, but win-win.

Everyone who holds bitcoin wins from an increase in demand and adoption by society. Even non-bitcoin holders win, as they can enjoy a new, decentralized, peer-to-peer currency with innovations in the future.

To say that bitcoin is a Ponzi scheme is not true. Bitcoin and Ponzi schemes are not at all comparable in their intentions or how they work.

Myth 4: Bitcoin Is used to buy drugs and for money laundering

With Bitcoin, every single transaction is public, which is not exactly ideal if you are looking to engage in illegal activities. Two reports were recently released claiming that only 1 percent of all Bitcoin transactions were used for money laundering or  44 percent for illegal activities. Needless to say there is no consensus on this issue.

The problem with using Bitcoin or any other cryptocurrency for illegal activities is that you cannot do much with those yet if you have acquired them illegally. If you are running a large illegal operation and you suddenly decide to collect Bitcoins instead of cash, how are you going to pay for your expenses? You will most likely need to go through an exchange to get good old fiat currency in exchange for your cryptocurrencies, and you cannot do this anonymously as many exchanges follow Know Your Customer (KYC) and Anti Money Laundering (AML) procedures when registering users. This is where criminals using cryptocurrencies will get caught as law enforcement agencies are monitoring these exchanges. So cash will probably remain the currency of choice for criminals for the time being.

Myth 5: The blockchain is the real breakthrough and bitcoins are unnecessary

It’s true – the blockchain is arguably the real genius of Satoshi Nakamoto’s invention. The distributed ledger and trustless security of the blockchain is what gives bitcoin its magic, but oftentimes when people first realize this, they discount bitcoin as just one use case of the blockchain.

In reality, mining is the bread-and-butter of the bitcoin protocol, and without miners there would be no blockchain. Consequently, miners need to be rewarded for their work, otherwise they would have no incentive to contribute their time and computing power to maintain the blockchain. As its native reward token, bitcoin is essential to the functionality of the blockchain.

Myth 6: Governments will ban bitcoin

Classic FUD (fear, uncertainty, doubt) perpetuated by the press that has fueled more than 200 obituaries to date. Sure, a small minority of nations have made cryptocurrency officially illegalEcuador, for example, launched its own ‘digital currency’ after banning its potential competitor, Bitcoin. Meanwhile, the blockchain industry is booming in places like the US, JapanHong KongSingapore, and Switzerland

Bitcoin may even play an increasing role in geopolitics. Therefore, it may simply become a risk for governments and central banks not to own Bitcoin (or whichever global cryptocurrency becomes the de facto store of value).

Meanwhile, volatility is diminishing, new money keeps flowing in, and the public becomes more knowledgeable about how the world’s first decentralized currency really works and why governments can’t just flip a switch and turn it off.

“It’s impossible to ban bitcoin and cryptocurrency trading because the more you regulate, the more it will become popular,” explains Francesco Nazari Fusetti, co-founder and chief executive officer of Aidcoin.

Additionally, governments are reportedly buying Bitcoin themselves. What’s more, some officials have even admitted to spreading false rumors to capitalize on the price movements.

Lastly, ask yourself: what country in their right mind would get rid of a burgeoning new industry that is expected to grow at a Compound Annual Growth Rate (CAGR) of 61.5% by 2021? Russia’s President Vladimir Putin is just one of the leaders who believe that the technology holds massive potential for his country and the global economy. 

 “The digital economy isn’t a separate industry, it’s essentially the foundation for creating brand new business models,” he said at the St. Petersburg Economic Forum last summer.

 

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