13 common misconceptions about Bitcoin
- Bitcoin is fiat
Bitcoin is not fiat. Fiat means currency that is required to be used by the government (by ‘fiat’, or decree). Bitcoin is not required at all. It is another option for everyone on the planet to use. Having another option does not restrict your choices; it broadens them. If Bitcoin doesn’t add to your life, don’t use it. Some people find that inflation or confiscation is getting out of control where they are. In that case, it is good to have a Plan B.
2. Bitcoin isn’t backed by anything
This is technically true, in that bitcoin is not redeemable at a fixed rate by a specific entity. This is a good thing, however, as backing requires a trusted counterparty, which is what bitcoin makes unnecessary. Backing is only needed when the token has no intrinsic value.
3. Bitcoin has no intrinsic value/is worthless
The intrinsic value of a bitcoin is the ability to write to the Bitcoin blockchain, a permanent, immutable, verifiable, globally accessible ledger. This is incredibly valuable, with applications that go far beyond payments.
4. Bitcoin is too expensive
Each bitcoin is divisible into 100 million pieces (called satoshis). People can purchase exactly the amount of bitcoin that they need. If you are paid in bitcoin, you receive exactly that amount and do not need to “make change”. Bitcoin is not a physical object. Owning bitcoins means holding a private key that allows you to write to a global ledger. It isn’t necessary to buy a “whole” bitcoin. It is exactly the combination of divisibility and scarcity that allows the price to rise significantly.
5. Anyone can just make more bitcoins
No one can create more than the 21 million bitcoins that can ever exist. The miners can only increase the supply by mining according to the rules (exponentially decreasing block rewards through 2140, staying within the 21 million bitcoin limit). Investors can only buy or sell the bitcoins that have been mined. Even the founder, the pseudonymous Satoshi Nakamoto, only controls the bitcoins for which he/she controls the corresponding private keys. Satoshi cannot violate or change the rules of the Bitcoin system.
Anyone can create copies, knockoffs, or forks of Bitcoin at anytime (and they have and will continue to do so). A copy of a system does not copy the value of a system (although it can confuse newcomers). A large part of the value of Bitcoin comes from the brand, the network effect, the security, the track record, and the community. These are not easily replicated.
6. Bitcoin is a bubble/Bitcoin is going to crash
Bitcoin is a great asset (no liability, easy to store, easy to move, can be stored with very high security, many on-ramps and off-ramps). The price can freely move, and as it is adopted, the price will rise along with adoption. This can lead to speculators buying, which drives up the price further (which attracts more speculators, up to a point). Bitcoin has had many bubbles, where the price detached from the current value of the network. These were followed by crashes, but the long-term trend has been growth in the value of the network and growth in the value of the token. Many other assets have grown massively in value, such as the price of a short domain name, an acre of land in Manhattan, or a Van Gogh painting. They share key characteristics with Bitcoin: limited supply, growing demand.
Bitcoin has crashed, many times, and each time it continued to be used and improved.
7. Bitcoin is a Ponzi scheme
A Ponzi scheme is when a con artist pays prior investors with the money from new investors, typically promising specific and extraordinary guaranteed returns. No one is running bitcoin. Bitcoin itself does not promise any kind of returns. Any individual can promote bitcoin by making outlandish promises, but the same is true to real estate or the stock market. If there is enough irrational exuberance, you can get a bubble (which is conceptually similar to a Ponzi, but it is not a Ponzi)
8. Bitcoin is a scam
Bitcoin is an open source project to build money for anyone to use. There is no secret element or centralized leader to misrepresent and deceive. The code is public and the transactions are public. Everyone should do their own due diligence and act accordingly.
9. Bitcoin is dead
Bitcoin is very much alive, and will continue to exist even if some of the dreams of Bitcoin enthusiasts are never realized. The media likes to claim that Bitcoin is dead because the price decreased, or because a person involved in Bitcoin quit. It is also common for people who do not understand the value of Bitcoin to simply assert that it is worthless. See the many bitcoin obituaries here: https://99bitcoins.com/bitcoinobituaries/
10. Bitcoin isn’t used for anything
Bitcoin is used everyday by people all over the world to buy items, send remittances, donate to charities, accumulate savings, pay salaries, and record information. People are using bitcoins to buy food/electronics/domain names/video games, to make business to business payments, to learn about new technology and economics, to day trade, and to raise funds. Future applications include portable identities and machine to machine payments. Imagine an autonomous delivery truck wants to pay an autonomous drone flying overhead for a real-time video feed in order to route around an obstruction on the road. How will the truck pay the drone? Cash? Credit card? Check? Or wirelessly pay in bitcoins?
11. Bitcoin is only used for bad things
Bitcoin is used for many things, just like money. The media likes to focus on scandalous and salacious activity. Early reporting on the internet said it was used by criminals and pornographers. Of course, but it was used for everything else as well. Any useful tool will find many uses, good and bad (cars, guns, planes, cash…)
12. Bitcoin is too complicated
Bitcoin is complicated, but using it doesn’t require understanding every aspect of how it works. You can’t expect people to learn elliptic curve cryptography in order to make a secure online payment. But you don’t expect people to understand how the Federal Reserve works to buy a cup of coffee with a dollar bill (or understand the Latin on it, or understand fractional-reserve banking, or calculate the existing money supply).
13. Bitcoin will be outlawed
Bitcoin will be outlawed, as it already has been in different jurisdictions in the past and likely will be in the future. Ecuador and Bangladesh have banned Bitcoin, and other countries have been hostile to it to varying degrees. Bitcoin is global in scope, and a local ban will hurt the country that does it more than the country will hurt Bitcoin. Countries that ban it will reconsider as they will miss out on the many benefits (and still will not be able to stop the black market). Bitcoin is the future, not only of money, but of record-keeping and transfers of value.