5 Common Myths About Bitcoin — And The Truth
If you’ve been involved with Bitcoin (BTC) for a while, you’re probably tired of hearing the same few myths repeated by the media and by your friends and family. If you’re new to cryptocurrencies, you may not realise you have some misconceptions about the topic. That’s only natural. It’s a new area and misinformation spreads fast.
Let’s take a look at five of the most common misconceptions — and the truth behind them.
Bitcoin is used by criminals because it’s anonymous
It’s no secret that Bitcoin was used for illegal activities during its early years. Many early adopters used it to purchase drugs on the notorious marketplace The Silk Road, which was later closed down by the FBI.
While the supposed anonymity may have been attractive at the time, early users ended up regretting that choice.
Contrary to popular belief, Bitcoin is NOT anonymous — it’s pseudo-anonymous. This means that all transactions are recorded on the public blockchain, along with the addresses of the wallets involved.
Although no identifying personal details are included on the blockchain ledger, if you figure out who owns a particular wallet, you then know they were responsible for all transactions from that address.
Law enforcement is getting better at tracing transactions and figuring out who an address belongs to. So Bitcoin is a terrible choice for carrying out anything illegal. If you’re caught, your entire history is available.
People have always found a way to carry out illegal activities, long before Bitcoin existed — and probably always will. Cash is still the preferred payment method for most criminal activities, as it’s difficult to trace.
You have to buy a whole Bitcoin for it to be worth investing
With the price of Bitcoin reaching as high as almost $20,000 in 2017, it can seem like getting started is far too expensive. Who has that sort of money lying around?
But the amount of Bitcoin you buy, measured as a percentage of a whole coin or multiple coins, is arbitrary. £100 worth of Bitcoin is still £100 worth of Bitcoin whether it’s 0.00001 BTC or 10 BTC because it’s fungible.
You can buy units as small as 1 Satoshi — one hundred millionth (0.00000001 BTC.)
You should never invest more than you can afford to lose and for most of us, that’s a lot less than a whole Bitcoin.
Bitcoin has no intrinsic value and is not a currency
Money is all about perception and ‘intrinsic value’ is an oxymoron. If we all stopped believing in the pound (or the dollar or euro or any other currency), it would cease to have any value.
Value is in our minds. If you were dying of dehydration, you would value a bottle of water more highly than a diamond — even though water is otherwise free (or close to free.)
A toddler would choose a cheap box of Lego over a cheque for a million pounds because for them a fun plastic toy has a far greater value than a piece of paper.
This misconception is partly related to the volatility of Bitcoin’s price. In day to day life, you probably don’t notice your currency changing in value if you live in a country with low inflation rates. Inflation tends to only have a substantial effect over the course of decades.
By contrast, Bitcoin is liable to go through huge price swings in a matter of days or even hours. This can make it seem less like a currency.
But currencies can also be volatile. Hyperinflation can wipe out people’s life savings, sometimes even destroying a currency and a country’s economy along with it.
A classic example of this is post-war Germany, where the value of a dollar went from 4.2 marks to 4,210,500,000,000 marks in a few years.
This still occurs in some parts of the world, albeit in a less extreme form. Venezuela is currently facing annual inflation rates of over 40,000%, throwing the whole country into chaos.
So although the volatility of Bitcoin has yet to even out, that doesn’t stop it from being a currency.
To count as a currency, something simply needs to be a scarce and divisible medium of exchange — even if it’s not legal tender. The rest is in our heads.
Bitcoin has been (or will be) hacked — it’s not safe
However, exchanges, wallet providers and other cryptocurrency related companies have been hacked resulting in the theft of their customers’ Bitcoin. Most, if not all, of these hacks have been the result of security lapses.
As with any new technology, it has taken time for both customers and companies to figure out the best options for security and to learn from their mistakes.
You can keep your Bitcoin safe from hackers by first and foremost choosing a reputable company to manage it for you. A reputable wallet provider will take every possible step to meet the highest possible security standards and prevent hacks, in addition to looking after your private keys.
If you buy Bitcoin, it’s also your responsibility to take precautions. For example, you should turn on 2-factor authentication and use strong passwords. The same precautions apply to any other store of value and there are always going to be risks.
[Insert new Altcoin] will be ‘the next Bitcoin’
You may have heard, often on news sites, a particular altcoin (any cryptocurrency other than Bitcoin) getting described as ‘the next Bitcoin.’ What does this mean?
It usually implies that the altcoin will reach the same high value as Bitcoin. Sometimes this may imply that the altcoin is somehow better than Bitcoin and will become more popular. This phrasing is common, but it’s misleading.
For a start, most altcoins are not intended to have the same use as Bitcoin. Ethereum, for example, serves a different purpose and wasn’t designed to be a currency (although it has come to be used for that.) Many altcoins represent a new technology or platform.
As the name suggests, altcoins are alternatives, not replacements.
Some altcoins are indeed just a tweaked version of Bitcoin, designed to serve the same purpose. These are at a disadvantage when it comes to mass adoption because many people know about Bitcoin, there’s plenty of technology to suit it, and many people are familiar with its ins and outs.
If a particular improvement is likely to make Bitcoin more user-friendly and practical, it can be changed or there may be a fork. This, of course, only happens if there’s a consensus about the change, with most people who own Bitcoin agreeing. As it stands, there’s no real reason for an altcoin to replace it.
But that doesn’t mean Bitcoin will be the cryptocurrency to gain mass adoption and replace mainstream currencies. We have no idea what the future holds and what role it will find in our world.