6 Crypto Myths and The Reality Behind Them
In 2008, the world would witness an event that would change history forever. A man named Satoshi Nakamoto published The Bitcoin White Paper. The paper’s contents cited the release of a new digital currency that would be completely decentralized, rendering it nearly impossible for governments to regulate it.
That was the start of cryptocurrencies. Bitcoin was released shortly after in 2009. While Bitcoin reigns supreme as the king of cryptocurrencies today, few people had any knowledge about it back then. Over time, the currency grew. Other cryptocurrencies also entered the market. Today, nearly 8,000 cryptocurrencies exist. Cumulatively, they have a total market cap of more than $325 billion.
While no one has heard from Satoshi Nakamoto since 2010, that hasn’t stopped Bitcoin from becoming a global phenomenon. Today, Bitcoin trades for nearly $60,000. According to CNBC, 13 percent of Americans bought or traded cryptocurrency in the past twelve months. Experts predict this number is going to continue to grow.
However, while the number of cryptocurrency investors and traders grows, it has also resulted in many misconceptions flying around. Many people have perpetuated myths, most of which aren’t true. We’ve prepared this blog post to set the record straight. We’re going to address these myths and debunk them, providing you with the real picture.
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Myths About Cryptocurrency and the Reality Behind Them
Here are some of the most common myths people perpetuate:
Cryptocurrencies Are a Fad
Many people often argue that cryptocurrencies are a fad that will eventually fade away. Among these are investors like Warren Buffet, who compared Bitcoin to the 17th-century Dutch tulip craze. Likewise, economist Nouriel Roubini called cryptocurrencies “the mother or father of all scams.”
However, this couldn’t be farther from reality. Many people often associate cryptocurrencies with being a fad because they’re still speculative. However, the truth’s that cryptocurrencies are still barely out of infancy. Bitcoin, the world’s first cryptocurrency, is only twelve years old. As a result, these currencies are still in their price discovery phase.
In addition, what most people miss out on about cryptocurrencies is the impact they’re having on finance. Cryptocurrencies are transforming finance, money, and economies. As a result, they’re ushering in a new era where they will eventually replace paper currency.
The speculation primarily persists regarding which cryptocurrency will reign supreme. Although many cryptocurrencies like Bitcoin and Ethereum were designed for transactional use, they’ve not yet achieved that purpose. It remains to be seen whether they’ll eventually become stable enough for transactional use. However, most economists and financial analysts agree that stable coins will form the foundations for digital payment in the future.
Furthermore, people also ignore the impact these digital currencies have had on the global level. According to CNBC, cryptocurrencies have been the catalyst behind central banks creating their digital currencies. The Bahamas has already established its digital currency, and China is currently doing something similar.
Moreover, even if these cryptocurrencies don’t succeed in their intended purpose, they’ll still have other uses. Cryptocurrencies operate on blockchains, and experts have found other uses for blockchain. One such use is smart contracts. Many believe that smart contracts over the blockchain could become the basis for future transactions, such as selling houses and cars. Smart contracts would replace intermediaries such as brokers, accountants, bankers, and lawyers.
Blockchains Only Have One Use – Cryptocurrencies
Most people don’t understand what blockchains entail. They think that blockchains only have a singular purpose, and that’s related to cryptocurrencies. However, as we stated earlier, that’s not the case. In addition to smart contracts, blockchains also have various other uses. One such use is that of NFTs. People are trading artwork, music, and other art forms over the blockchain. NFTs, an abbreviation for non-fungible tokens, have become all the rage recently. Statistics show that approximately 15,000 to 50,000 NFT trades occur weekly.
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Cryptocurrencies Have Nefarious Uses
Many people often argue that since cryptocurrencies are challenging to track, people are using them for nefarious uses. They’ll claim that people use cryptocurrencies to buy drugs and finance illicit activities.
However, this is a hypocritical statement. For starters, people can use any currency they want for illicit purposes. Street dealing usually happens with the local currency, yet people don’t complain about that. In addition, according to a Chainalysis report, illicit activities only amounted to $10 billion or 1 percent of all crypto transactions in 2020. As a result, it’s crystal clear that most people don’t use cryptocurrencies for nefarious purposes.
In addition, most people think cryptocurrencies are completely untraceable. However, that’s just another myth.
Cryptocurrencies are Untraceable
Many people ignorantly claim that cryptocurrencies are untraceable. However, that’s not true. For starters, every crypto transaction gets recorded on the blockchain. The blockchain is available for everyone to view, meaning you’re only afforded pseudo-anonymity at best.
In addition, governments have the understanding and technology to unveil the shroud of secrecy that accompanies blockchain transactions. The IRS alone has invested millions of dollars in software that can follow blockchain transactions. Furthermore, IRS also wants cryptocurrency enthusiasts and investors to report their crypto trading. The IRS has published two notices concerning cryptocurrency. The first one came out in 2014, titled Notice 2014-2021. In that notice, the IRS defines cryptocurrency as property that’s subject to general tax law principles.
The IRS also published Ruling 2019-2024 that covers auto-generated cryptocurrency in detail.
Cryptocurrencies Have Environmental Impacts
Another common myth is that cryptocurrencies have environmental impacts. The reality’s that this statement is only partially true. Mining cryptocurrencies like Bitcoin does require significant power. Most crypto mining farms utilize fossil fuels as their primary energy source.
However, this statement also discounts the effort that miners have made to reduce their energy expenditure. In addition, many miners are now pursuing renewable energy alternatives to fuel their mining. Therefore, the environmental impact of mining cryptocurrency will eventually dwindle in the coming years.
Cryptocurrency is Only Speculative
People often argue that cryptocurrencies are only used for speculative purposes. However, that’s not true. The Bitcoin network alone settles approximately $10 billion in daily transactions. Moreover, according to a World Economic Forum study, 32 percent of Nigerians own Bitcoin primarily for peer-to-peer payments. Therefore, it’s apparent that cryptocurrencies are more than just speculative hordes of value.
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