In just a few months, we’ll be celebrating Bitcoin’s first decade in existence, and with that, the birth of a class of digital assets that has revolutionized how decentralization can — and does — work in the financial, insurance, real estate, supply managements sectors and more. Seen in the context of fiat money, one decade is, well, less than the blink of an eye, less than a dot along the line. And yet, just look at the exposure and engagement Bitcoin has developed over this short span of time, and you’ll realize it’s, well, kind of a big deal. A recent survey shows over 75% of Americans are familiar with cryptocurrency, and around the world the trend is showing similar familiarity.
That, however, comes at a cost. A lot of familiarity and not enough information can breed a slew of misconceptions. Although not all of them are entirely wrong, a little knowledge doesn’t go a long way, but rather tends to create confusion. Below are some of the more common misconceptions.
1. It’s anonymous
When novices first learn about cryptocurrency, they tend to misunderstand the level of anonymity provided by it. Since the notion of “pseudonymity” is not as familiar to regular folk, it obscures rather than clarifies what crypto can do.
Cryptocurrencies are not the same. Bitcoin, the mother of all crypto, is indeed pseudonymous rather than anonymous; it doesn’t disclose the user’s personal data during the transaction, however there are ways of tracking identities across the blockchain accessible to regular people, and all the more so there are sophisticated instruments that provide blockchain forensics for illegal activities to various governmental and financial entities.
Other cryptocurrencies provide much higher levels of anonymity. Monero and Dash, for instance, focus on privacy. Even so, when you use crypto on certain exchanges you often have to submit personal data, and many cooperate with governments in tracking fraudulent activity.
2. It’s unregulated
Regulation for crypto is a very busy area at the moment. Countries have varying degrees and types of regulation. Europe is crypto-curious, with Malta striking a different note by being at the forefront of the crypto revolution; other countries have moderate regulations. The US, Australia, Japan, South Korea, most South American countries — in fact, most countries around the world — stand together in allowing cryptocurrencies, but demanding various types and levels of compliance.
China, Macedonia, Morocco, Algeria, Pakistan, Bangladesh, Nepal, and India have effectively banned cryptocurrency. Don’t be surprised, though, if you see crypto activity from these countries, too. VPNs are pretty effective; also, you can’t really regulate the use of math and code on your computer.
For most, however, the bottom line is that more regulation will likely be introduced soon.
3. It’s untaxable income
There are some countries where indeed there is no taxation on cryptocurrency (The Netherlands, South Korea, Denmark, Italy, Singapore etc.), but that is likely because the issue hasn’t been properly considered at this point. For many countries, though, that idea is simply not true and merely represents a confusion between what you can get away with and what you are actually supposed to be doing.
Cryptocurrency is taxed differently depending on what it is considered to be. The U.S., U.K., and Australia tax it as capital gains; Japan sees it as “miscellaneous income”. Germany taxes it differently depending on whether you buy, invest or sell. The more advanced the regulatory system, the more complex the taxation system.
4. It’s for illegal dealings
That old argument probably stems from the association between crypto and various shady operations, such as the Silk Road or present-day dark-web services. To a certain extent, it is true that cryptocurrencies can be used for illicit activities. An Australian study claims that 25% of the Bitcoin users, and about 44% of Bitcoin transactions, are engaged in illegal use.
On the other hand, the most popular currency for black market operations remains the US dollar. Just as cryptocurrency can be used for illegal transactions or operations, so can fiat money. And most things that can be used for good can also be used for nefarious purposes, from Microsoft suite apps being used to write anarchist treatises or keep track of blackmail payments to cars used in bombings and messaging apps used by terrorists.
5. It’s trying to replace money
Every now and then, people in high positions in various financial institutions get scandalized over cryptocurrencies’ perceived threat to the dominance of fiat. Bitcoin is a scam, crypto is poisonous, it can’t be used, it will never replace fiat money.
Beyond the fact that such voices seem to protest a bit too much at the oncoming revolution targeting old-school opaque and over-centralized institutions, does anyone seriously think crypto stands to replace fiat money, in any foreseeable future? Even the most optimistic supporters merely predict large-scale adoption, rather than completely replacing the existing system.
What cryptocurrency is trying to do is to provide an alternative that works faster, more securely, more cheaply and irreversibly, without third-party approval and supervision. The airplane has not replaced the car, and once email was invented, phone lines were not cut off.
6. It’s separate from the blockchain
Simply put, it just can’t be. Cryptocurrency is the product and reward of a blockchain. There are over 1,500 coins now, and behind each there are blockchains that enable them as mining rewards, in-platform tokens etc. While blockchains do have other uses other than merely minting coins, they are essential for that purpose.
The misconception may have arisen as a result of blockchain’s increased popularity outside the creation of digital assets, but rather as decentralized distributed ledgers for various large-scale operations. The blockchain, indeed, can exist in other contexts than crypto; crypto cannot exist outside a blockchain.
7. It’s a bubble
We are probably at a moment when major cryptocurrencies are pretty much aligned to mining costs and market demand. This doesn’t mean the market could not fall — just as it could for the US dollar or the Euro — but it does mean that the madness of December 2017, when Bitcoin briefly spiked to $19,000, is unlikely to come around anytime soon. In fact, recent market movement showed that investors are wary of unwarranted price climbs and tend to stay conservative. It is a sign of increased maturity and bodes well for the immediate future.
That, however, applies to the major coins. There are many improbably coins out there with very little market value and very little reason to exist long-term. Those, rather than being a bubble, are simply (to put it bluntly) worthless.
8. It’s useless
This notion must be almost funny for someone who has gotten rich on cryptocurrency. Satoshi Nakamoto, whoever he is and if he is still alive, owns almost a million bitcoin. Multiply that by $6,500. Or, to take a more palpable example, think of former Mt. Gox CEO Mark Karpeles, or the Winklevoss twins, or Gavin Andresen or Vitalik Buterin.
However, beyond making some traders very, very rich, cryptocurrencies are not useless in another sense of the word. They can be used to purchase products and services, to trade at a profit, or as in-platform tokens. Crypto is, in fact, a busy and quite lucrative market.
9. It’s too complicated for regular people
Which part? The code used to create cryptocurrency is in a sense much more complex than the printing presses used to mint fiat money; on the other hand, you don’t need to know anything about either to use their product. Cryptocurrency can be as simple or complex as your skills in operating with it. Just as you don’t need to be a car engineer to drive your sedan, so with crypto: if you are only interested in owning it, trading it, investing it etc., you simply need to know which exchanges to go to or what wallets to use, and you are set.
The interface for using digital assets has evolved massively over the last couple of years, and now you can operate with cryptocurrency in pretty much the same way you would with your fiat money in digital transactions over the internet.
As you can imagine, there is much more crypto-related confusion floating around. Fiat money has been around for a thousand years and yet there are misconceptions about what it is tethered to and how it is issued. With crypto being a mere 10-year-old (less, really), no wonder there is still plenty of room for education on the topic.