Cryptocurrencies have been around since 2009, so there’s no shortage of myths floating around about the trend and its individual currencies. But these myths are exactly that—myths—so if you want to trade or invest in cryptocurrencies, it’s important to separate fact from fiction. Here are 10 common myths about cryptocurrencies that you need to stop believing.
Myth 1: Virtual Currencies are Banned in Most Countries
Cryptocurrency scams have led some people to assume that virtual currencies are illegal. This, however, is not true. While a few countries have banned their use entirely, most countries have taken a wait-and-see approach and only closely regulate them. For example, China has limited citizens’ ability to buy cryptocurrencies but hasn’t outright banned them—as of yet. Additionally, many governments see digital money as an opportunity for economic growth and are actively encouraging its adoption in their countries.
For example, Estonia was an early adopter of crypto-development and introduced blockchain technology into various aspects of their government. It was one of the first to create its own digital currency and also the first country to release a .eest domain extension. The Estonian Ministry of Economic Affairs and Communications estimates that by 2025 about 10% of all transactions will be done digitally, whether it’s a bank transfer or paying for something in person.
Myth 2: There is No Intrinsic Value
You’ll often hear people complain that cryptocurrencies don’t have any intrinsic value. This is true, however, many intangible assets (like fine art) are also valued at a premium. Any currency is only as valuable as what you can do with it. For example, while you can’t eat gold or pay rent with it, you can exchange it for something of value – such as food or shelter. The same could be said for cryptocurrencies – they have no intrinsic value by themselves but they may have some indirect utility because of their potential use in trade. Just keep in mind that not all Digital Money has proven its worth and there are several cryptocurrency scams out there taking advantage of people who believe too much in nothing at all.
Another common myth about cryptocurrencies is that you can’t buy goods and services with them. Although true for Bitcoin, which only has a few legitimate online merchants accepting it as payment (primarily for novelty purposes), many cryptocurrencies are accepted at many online and offline retailers. For example, merchants like Overstock, Expedia, Newegg and even Microsoft accept multiple types of cryptocurrency as payment. Despite the current lack of clear use cases for some of them, it’s plausible that currencies designed with a purpose will eventually come into wide-spread use. Such cryptocurrencies could include those that exist to provide investment platforms for Initial Coin Offerings or other cryptocurrency-related investment vehicles.
Myth 3: Only Hackers Use Bitcoin
As opposed to other cryptocurrencies, bitcoin is what we refer to as a peer-to-peer currency. In other words, there’s no centralized company or person behind it, it’s all done by individuals. The idea of having a currency that only hackers use might be a bit scary for some people but that shouldn’t stop you from seeing all of its benefits. For example, because there are so many users involved in maintaining and securing bitcoin transactions can take place faster and much more securely than with traditional methods.
The only way for bitcoin transactions to go through is if people agree that they actually did, and it’s a pretty democratic process. In fact, every single transaction that takes place on bitcoin’s network is logged publicly in what’s known as a blockchain. These transactions can be confirmed as valid using information from multiple computers involved in confirming and processing them. This means there are a ton of people looking at each and every transaction that goes through so it’s impossible for hackers or individuals to tamper with any of them.
Myth 4: Crypto Mining Consumes Too Much Electricity
Another myth is that crypto mining uses huge amounts of power, but while bitcoin and other cryptocurrencies do use a lot of electricity, they still don’t account for much compared with many other countries. We’re all guilty of paying more attention to bad news than good news and there are probably more efficient ways to generate power in most areas too, but it might not be as big an issue as we think. For now, at least…But there is one area where crypto mining definitely does drain resources — and that’s money.
The energy consumption is an issue, but it’s hardly a deal breaker. The largest mining operations are in China and they take advantage of low-cost hydroelectric power that’s basically free. These operations now have huge electricity bills, so they tend to seek ways to reduce their energy use. Still, there’s no getting around the fact that crypto mining does consume a lot of power—and that power is coming from dirty sources like coal and nuclear. The solution? Mining companies are actively looking for cleaner solutions and lots of them already exist.
Myth 5: Bitcoin Has No Consumer Protection
This isn’t quite true; Bitcoin does have consumer protection. Each transaction has rules encoded into it by its creator and other participants. The coding is stored in a blockchain, which acts as a ledger of sorts for Bitcoin transactions. If someone steals money from your Bitcoin wallet, he or she can’t move it away without some proof that they own it—unless you tell them your private key (basically, password). As with everything else related to digital security, there are ways around blockchain-based consumer protection too. It all depends on how diligent you are in keeping track of where your money is going and taking care not to become a victim yourself.
There are a lot of good Bitcoin wallets out there. Armory, an open-source software wallet that offers a lot of control over how your Bitcoins are stored, is one of the best. It’s up to you whether you want to use a third-party wallet service from one of these brokers/exchanges or if you trust the service provided by your broker/exchange. this article doesn’t really suggest which is better; it’s really your choice. If you decide to keep your own wallet on a computer that is not connected to the Internet (cold storage), protect it as carefully as possible from malware, hackers, and other threats.
Myth 6. Cyber Attacks Could Kill Bitcoin
Technically, it is possible for cyber attacks or large-scale government interference to kill bitcoin. It could be done either by destroying wallets and exchanges, which would result in a drop in price and trading volume or through something like Silk Road, which demonstrated that criminals will always find some way to use cryptocurrency. But to date no one has been able to destroy bitcoin. Governments can easily manipulate fiat currencies like they do with money laundering and drug trafficking laws, but so far they have not had much success at influencing cryptocurrencies other than taking an occasional prominent exchange offline with distributed denial of service attacks. Bitcoin’s value is based on its limited supply rather than trust in any one institution.