Common misconceptions about Bitcoin

Below I wrote a small list of common misconceptions many people have about Bitcoin. This is mostly focused on the BTC version, but many points apply to the BCH version as well

1. Bitcoin is anonymous. No, Bitcoin’s blockchain is transparent and constantly analyzed by specialist companies which track your coins. This data will be used by regulators to tax individuals, combat money laundering and fraud. If you purchased your Bitcoins via a regulated exchange, the coins you buy can and will be traced back to you.

2. Bitcoin transfers are instant and free. Bitcoin transfers have never been instant. Yes, they get added to the mempool almost instantly, but it takes on average 10 minutes to mine a block and it is only when it is included in a block that you can be sure the transfer went through. As for transaction cost is around $15 USD, which makes it unusable for most transaction (the average transaction for online purchases is around $50).

3. Bitcoin is a store of value. Let’s first define the term “store of value”. A store of value is a thing that maintains it purchasing power from day to day in almost all circumstances. In other words, there is no state of the world (save nuclear war), where the holder wake up and be able to purchase less than he could the day before. Bitcoin clearly does not satisfy this definition as it can easily drop in excess of 10% (e.g. on a Musk tweet).

4. Bitcoin is a hedge against inflation. Inflation can have many and multiple causes. One is money printing yes, but inflation can also come from higher energy prices caused by some shock in the oil supply chain e.g. from instability in the Middle-East. Higher energy prices cause all prices to rise as a large part of the economy is dependent on cheap oil. Take for example food. The production, processing and distribution of food all requires energy or plastics. Rising oil prices directly result in higher food prices. Inflation caused by higher energy costs results in higher monthly bills for most people, which also leaves less money to be spent on crypto. People may even have to liquidate part of their crypto holdings to make ends meet.

5. There’s a hard physical limit on the the number of bitcoin that can be mined. Unlike gold, which is formed in a supernova explosion and is therefore naturally limited, Bitcoin is made by humans. If a majority of the ecosystem decide to increase the supply cap from 21 million to 210 million for example, the only thing that would be needed is to change one number in the code. Of course, reaching this level of consensus is hard and previous disagreements on the protocol have lead to splits (BTC-BCH-BSV).

6. Bitcoin is money. For something to be money, it has to be a unit of account. That is, something which is used to measure value (you’re probably measuring the value of your crypto portfolio in USD right now). Most people also have a strong intuition of the value of 1 USD. For example you would know roughly how much one apple would cost you. Now try to do that with Bitcoin without having to think of the price of Bitcoin in USD.