Top Misconceptions About Cryptocurrency
Blockchain is arguably one of the greatest, most disruptive technologies developed in the 21st century. It is also incredibly hard to understand. By extension, cryptocurrency is a difficult topic to conceptualize. There is a lot of misinformation online about what cryptocurrency is, how it is used, and where it derives value from. Here are the top misconceptions about cryptocurrency:
Cryptocurrency is anonymous and untraceable
Cryptocurrency operates on an immutable, public ledger that is stored on the blockchain. Each block on a blockchain stores transaction information. In practice, this means that every transaction can be traced back to a block, stored on the blockchain, of the information on that transaction. It is more transparent than other traditional forms of money transfer.
However, these transactions are stored under ‘public keys’ which is the identifier for both parties of a transaction. These public keys are not obviously associated with an individual, hence the belief that cryptocurrency is anonymous. But most of these address can be linked to an individual via the exchange they used to execute the transaction. These public keys have also been associate with large organizations, or token holders, that execute large transactions. Using this type of public key investigation, multiple illicit organizations using cryptocurrency to shroud their transactions have been arrested.
Cryptocurrency is used predominately for illicit activity
Like most new technology, criminals were early adopters of cryptocurrency, leading to its reputation as a technology used exclusively for illicit activity. Although it is more well-known now that cryptocurrency is traceable, criminals prefer it to other forms of payment for the same reason individuals do: it is fast, cross-bored, liquid.
Thanks to organizations like Chainalysis, criminal activity on the blockchain is lower now than it used to be. The illicit share of cryptocurrency activity in 2020 was less than 1%. In fact, most of the crime committed using blockchain are scams to steal cryptocurrency — but do not use cryptocurrency for other illegal activities. Scams make up the majority of cryptocurrency related crime at 54%.
Cryptocurrency is too volatile to be a real investment
At glance, cryptocurrency price charts are intimidating and paint a picture of an asset too volatile to invest in. But most cryptocurrency investors would recommend investing in the technology the way you would in any other asset: diversify your portfolio, play the long game, ignore day-to-day trends, and check your emotions at the door.
Recent research has shown that Bitcoin’s correlation ratio with stocks is 0.66 — the highest is has ever been. “While it’s true that the value of cryptocurrency can fluctuate wildly, this doesn’t mean that it’s not a viable investment,” said Kev Tilley, a financial expert who works as the managing director at Mortgageable. “Many well-known investors have made a fortune by investing in Bitcoin and other digital currencies. What’s important is to do your research and invest wisely.”
Cryptocurrency is unregulated
The 118th U.S. Congress has introduced over 50 pieces of legislation targeted towards regulating blockchain, cryptocurrency, and supporting its growth. According to Forbes, these crypto bills can be divided into six different categories. These include taxation, central bank digital currency (CBDC), regulatory treatment of digital assets, supporting blockchain technology, sanctions, and limitations on crypto use by elected officials.
In fact, one of the first piece of cryptocurrency legislation was the extension of the Bank Secrecy Act in 2013, which expanded the jurisdiction of the Financial Crimes Enforcement Network (FinCEN) to cryptocurrencies. This bureau, housed within the Department of the Treasury, has researched and written more on cryptocurrencies than any agency in the world.
So while the regulatory environment with cryptocurrency is volatile, the U.S. and other states globally, are making headway to regulate cryptocurrency and support its growth.
Cryptocurrency is only for the young and tech-savvy
The smallest, but fastest growing group of cryptocurrency users in the U.S. are 65 years old and up. The total number of U.S. adults that hold cryptocurrency is projected to grow by 19% by the end of 2022, totaling almost 33.7 million people.
“Older investors will be more risk-averse and leery of the volatile crypto market. Although, they are increasingly starting to invest in crypto as more retirement funds offer it as an option,” said Nazmul Islam, forecasting analyst at Insider Intelligence.
While 50% of Bitcoin users are considered millennials, 28.33% are between the ages of 35 and 44. As cryptocurrency education expands, and institutional investors and funds incorporate cryptocurrency into their diversified offerings to clients, this number will surely increase.
About Centuries Analytics
Investing in cryptocurrency doesn’t have to be risky — not anymore. We let data speak; not investors, “experts”, pundits, or tv show commentators. Centuries uses social media, financial, and macro-economic data to determine and predict cryptocurrency markets.
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