Top 10 Myths About Cryptocurrencies Everyone Should Know
Since their introduction in 2009, cryptocurrencies have grown in popularity significantly. They are a little obscure and difficult to grasp, which leads to misconceptions and misunderstandings about these digital currencies. In no particular order, here are some of the most frequent cryptocurrency misconceptions, along with an assessment of facts to help you decide if they are true or not.
#1 Digital Currencies Are Only Used for Illicit Activity
One of the oldest and most prevalent misconceptions regarding digital currencies is that they are mostly utilized for illegal purposes. While it is true that digital currencies have been utilized by people with malicious intentions as well as criminal organizations, the same could be said of every form of money used throughout history. According to Chainalysis, a business that uses blockchain data analysis to aid investigators in cryptocurrency crimes, the number of cryptocurrency transactions tied to unlawful activity plummeted to 0.34 percent of all cryptocurrency transactions in 2020 (the most recent report). 54 percent of the transactions in this limited number were bitcoin frauds.
It is vital to highlight that governments and the international community are cracking down on criminals and organized crime’s usage of bitcoin. Many governments have implemented cryptocurrency anti-money laundering and counter-terrorism funding measures; agencies and teams have been formed to combat the use of cryptocurrencies in these criminal activities. For example, the National Cryptocurrency Enforcement Team (NCET) in the United States investigates and prosecutes illicit cryptocurrency use.
#2 Digital Currencies Don’t Have Value
Worth is a subjective concept — one individual, group, or civilization may place monetary value on an object that another throws away. For example, the first cryptocurrency, Bitcoin, was priced in thousandths of a penny immediately after its inception in 2009. Its popularity grew further, and by 2021, it had reached $69,000 per Bitcoin. Its growth in value indicates that how a society perceives an asset is critical in determining whether it has worth. Ethereum, the blockchain ecosystem that underpins the cryptocurrency ether (ETH), serves as the foundation for non-fungible tokens, decentralized financial applications, and other technical developments in digital asset ownership. Although ETH does not have the same monetary value as Bitcoin, its usefulness and potential make it far more valuable to a firm building financial goods and services based on the Ethereum blockchain and smart contracts. Investors and businesses have begun to hold cryptocurrencies for usage in banking, investing, venture capital, and a variety of other areas. Galaxy Digital Holdings, for example, is a financial services and investment firm that manages about $2.9 billion in crypto (digital) assets.
Cryptocurrency dollar value appears to fluctuate following consumer and investor sentiments, supply, demand, and economic circumstances — similar to many other assets or currencies.
#3 Cryptocurrencies Aren’t Secure
Blockchain is the key technology behind cryptocurrencies. A blockchain is a distributed database that is protected by highly secure encryption techniques and technology. As transactions are inserted into blockchain blocks, prior transaction information is saved and encrypted in the new blocks. The chain builds on each preceding block, and a community of automated verifiers must agree that the information recorded in the transactions is correct. The blockchain’s encryption, connected blocks, and consensus procedures make it almost impossible to “steal” bitcoin by changing information in the blockchain. The flaw is in the manner in which cryptocurrency is accessible and kept, such as in bitcoin wallets or centralized exchanges that allow transactions. It is absolutely feasible to transmit bitcoin from one user to another without fear of being hacked or tampered with, but the platforms and software used to store and access it may be hacked or tampered with.
Contrary to popular belief, cryptocurrency mining is not the process of creating a token — it is the process of validating transactions and creating new blocks in the blockchain. Cryptocurrency is the reward given for opening a new block.
There are some extremely safe ways you may take to safeguard the safety of your Bitcoin. You may, for example, store your crypto asset keys off exchanges and in cold storage, like Ledger. When you’re ready to use it, send only the amount you wish to spend to your hot wallet over a secure, connected connection on a non-mobile device, such as a personal computer.
#4 Digital Currencies Are Bad for the Environment
There are valid reasons to be worried about the environmental impact of digital currency. Some cryptocurrencies utilize a consensus method that verifies and validates transactions by utilizing computing power and vast quantities of energy. Over time, Bitcoin, one of the most popular and valuable tokens, has risen in popularity and value, and large mining operations have developed to capitalize on the spike in popularity and control the cryptomining industry. Each of these mining farms needs vast quantities of electricity to power the mining rigs, totaling a network energy usage comparable to that of several small countries. However, the environmental effect is heavily dependent on the source of energy used by the mining activities and the influence their energy usage has on the power system.
If mining activities rely on fossil-fuel-powered grids for the majority of their electricity, the result is extra carbon emissions for an intangible-yet-valuable object whose future and benefits to society are unknown. Mining activities, on the other hand, have a smaller environmental effect if they are fuelled mostly by renewable energy.
Not all cryptocurrencies use energy intensive mining for validation. Cryptocurrency and blockchain technology are ever-evolving, with some taking steps to reduce their environmental footprints.
Bitcoin miners have also bought previously idled fossil fuel facilities in order to power their operations. This raises fresh problems for environmentalists and governments attempting to minimize their carbon footprints in the coming decades.
#5 Cryptocurrencies Are a Scam
Many businesses and merchants already accept cryptocurrency as a form of payment. People are using them in personal transactions, and governments are attempting to regulate them. Most digital currencies do not have any programming, coding, or evil artificial purpose to steal your money.
However, others have devised schemes to defraud you of your cryptocurrencies or money. For example, many initial coin offerings (ICOs) — unregulated funding for new cryptocurrency ventures — have proven to be hoaxes. Other cryptocurrency scams may attempt to convince you to accept unconfirmed transactions or phone you, pretending to be government authorities and urging you to settle your debts in bitcoin.
You can find information about cryptocurrency and other scams on the Federal Trade Commission’s Consumer Information website.
While it is hard to completely avoid the possibility of becoming a victim of a scam, education and awareness can help lower your chances of becoming a victim.
#6 Cryptocurrencies Are Real Money
Money is defined by the International Monetary Fund as a generally accepted store of value, unit of account, or medium of exchange that can be converted into prices. Cryptocurrency is defined by the Financial Industry Regulatory Authority (FINRA) as a digital representation of a stored value using encryption.
The Internal Revenue Service considers cryptocurrencies to be “convertible” currency, meaning they have the same value in “real” cash. Cryptocurrency transactions are taxed, and capital gains or losses from owning them must be recorded on your tax returns.
Accountants have been directed to account for cryptocurrencies as intangible assets with an indeterminate life and to measure any crypto assets at cost rather than value in the absence of guidelines from the Federal Accounting Standards Board and Generally Accepted Accounting Principles.
Various businesses accept Bitcoin, Ether (ETH), and other cryptocurrencies as payment for goods; you may also trade your cryptocurrency for legal money at many cryptocurrency exchanges.
Whether an asset is legal tender does not influence whether it is considered to be money by financial authorities and regulators.
Most countries do not accept cryptocurrency as physical cash or legal tender, yet it fits the definitions of money established by four recognized and legitimate financial bodies.
#7 Cryptocurrencies Will Replace Fiat Currency
Cryptocurrencies are still in their infancy, whereas fiat currencies have been around for generations. Around the year 1,000 CE, China is considered to have established the first fiat money. This sort of money is widely used in many industrialized countries.
To replace fiat currency, individuals must prefer cryptocurrencies to the money they are familiar with and understand. However, once value and purchasing power have been created, it is feasible that this will occur. If stores started advertising bitcoin pricing and more people started utilizing it to buy products and services, it may establish a trend.
Governments and officials, on the other hand, will not abandon fiat money lightly due to the established system of controls in place for collecting taxes and paying for government-sponsored programs and services. Without the collection of taxes, people’s reliance on social services would dwindle, and other government financing may dry up.
If cryptocurrency became fiat’s replacement, it is unclear how its inflationary trends could be accelerated or slowed — it could take decades to find solutions.
Furthermore, owing to the decentralized structure of cryptocurrencies, there would be no mechanism to regulate inflation through monetary policies. It has taken more than a century to develop the modern tools for combating inflation and unemployment while boosting economic growth. The total decentralization of money via cryptocurrencies might have unanticipated consequences for a country’s economy. Because blockchain technology and cryptocurrencies lack built-in instruments for affecting inflation, employment, or economic growth, new monetary policies and tools would be required.
#8 Cryptocurrencies Are a Fad
Computers, the internet, and email were formerly thought to be of interest primarily to a tiny group of tech enthusiasts; they are now commonplace in modern personal and professional lives. It’s difficult to forecast where cryptocurrencies will be in a few decades; nevertheless, the technology they introduced and the businesses they inspired will almost certainly continue to be developed and polished. Decentralized finance applications are taking shape, attracting the attention of financial institutions and consumers alike. Governments are looking for methods to deploy legally recognized cryptocurrencies tied to a more solid asset, and some firms are significantly investing in Bitcoin and altcoins.
Tech titans are looking at methods to merge the physical and digital worlds, with non-fungible tokens developed for anything imaginable as a building component. Tokens may be generated for any item and have a value given to them; the virtual and real worlds are colliding, and cryptocurrency is likely to be involved.
#9 Bitcoin is fading. Meme coins are the future.
Bitcoin is currently regarded as the “granddaddy” of cryptocurrencies, and investors (or, more properly, speculators) are pouring money into other cryptocurrencies such as Dogecoin. According to Investopedia, Bitcoin is “losing its strength as the driving force of the cryptocurrency industry.” A recent Forbes headline states, “Bitcoin And Ethereum Are Being Left In The Dust By Dogecoin.”
Dogecoin and other cryptocurrencies that are based only on memes (Dogecoin, with its Shiba Inu dog mascot, refers to the “doge” meme) have no pretension of being used in financial transactions. Furthermore, because there is no apparent restriction on the quantity of these currencies, their prices fluctuate in response to unpredictable occurrences like Musk’s tweets. Meme currency prices appear to be purely dependent on the “greater fool” theory — all you need to do to benefit from your investment is locate an even larger fool ready to pay a higher price than you paid for the digital coins.
Bitcoin’s technology appears to be out of date when compared to some of the newer cryptocurrencies that provide users with better anonymity, faster transaction processing, and more advanced technological capabilities that allow for the automatic completion of complicated financial transactions. Despite its shortcomings, bitcoin remains dominant. It accounts for approximately half of all cryptocurrencies’ total value.
#10 Cryptocurrency is really just another scam, ponzi scheme, or pyramid scheme
There will always be negative parts to every sector, so stay vigilant and do your homework. One of the nice things about blockchain and cryptocurrencies is that if a firm is open enough, you can find out almost anything about it. And that should be the correct method. Being involved with blockchain puts you at the cutting edge of Fintech and technical growth. If the firm or cryptocurrency does not even up in a basic Google search, something is wrong.
