Last updated on July 11th, 2023 at 11:58 pm
Being a relatively new asset class, cryptocurrency is still very much confusing to many. With the crypto space gaining tremendous popularity over the years, there are many myths and rumors about the market in general, especially for the uninitiated. To someone who hasn’t taken the time to learn more about blockchain technology and cryptocurrencies, the crypto market can seem quite perplexing.
We’ve all heard our share of crypto silliness, and there’s a lot of misinformation out there. This article will debunk the top 10 crypto myths to separate the fact from the FUD.
Let’s dive in!
Myth #1 Cryptocurrencies Are Illegal
This myth is largely based on the fact that cryptocurrencies like Bitcoin are not a legal tender yet in most countries. While that is changing slowly with El Salvador making BTC a legal tender from September 2020, it’s important to know that cryptocurrencies do not have to be categorized as a legal tender for them to be considered legal. This is because most countries recognize cryptocurrencies as virtual currency. For instance, in the USA, cryptocurrencies are classified as virtual currency by the US government, and this is recognized by the US Financial Crimes Enforcement Network (FinCEN). This ensures that cryptocurrencies like Bitcoin are definitely not illegal.
Myth #2 Cryptocurrencies Will Make You Rich Quickly
A common misconception about cryptocurrencies, especially among beginners, is that investing in crypto can quickly make them ultra-rich. Unfortunately, this cannot be far from the truth, and in fact, this is one of the most common mistakes made by crypto investors. Because of the belief that crypto is their ticket to becoming a millionaire, many investors end up making sub-optimal decisions in the market and often even get rekt.
Thus, it’s important to steer clear of fake crypto gurus online who promote their services by claiming that crypto will make you rich quickly. Instead of jumping into buying crypto, you must do your own research (DYOR), and make a logical investment decision based on your risk appetite and financial plans.
Myth #3 Cryptocurrencies Are Bad For The Environment
When Tesla stopped accepting payments in Bitcoin earlier in May, stating environmental concerns, many eyes turned to crypto mining and its impact on the environment.
While cryptocurrencies like Bitcoin don’t directly affect the environment, their blockchains that follow the Proof of Work (PoW) consensus mechanism constantly consume electricity to validate transactions and keep the network secure. As a result, the mining rigs that validate transactions on these blockchains require massive amounts of computing power, which requires large amounts of electricity.
However, it’s important to note that many cryptocurrencies like Bitcoin have a hard cup on their supply, i.e., they have a fixed supply. For example, Bitcoin has a fixed supply of 21 million BTC. As we move closer to the hard cap of BTC, it’s becoming increasingly more difficult to generate new units because of the way the supply is designed. As a result, the energy consumed to mine it is also decreasing, and a time will come when no more mining will be possible. Moreover, keeping all the concerns in mind, miners have been working to make BTC mining more green, so much so that BTC mining now uses 56% green energy.
Furthermore, considering all the environmental concerns related to the PoW blockchains, a new consensus mechanism has also been designed. It’s known as the Proof of Stake (PoS) consensus mechanism and does not require tremendous computational power for validation and thus, does not consume high amounts of electricity.
Myth #4 All Cryptocurrencies Are The Same
Cryptocurrencies have different purposes and utilities. They are designed to cater to specific markets and provide a particular use case. Moreover, the number of cryptocurrencies has increased to over 3,000 now, and it would be silly to assume that all of them are designed to do the same thing.
Cryptocurrencies can serve different purposes, for example:
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- Payments – Cryptocurrencies like NEO, XRM, LTC are designed to be used for making payments for small-scale, daily transactions such as buying groceries, paying for the taxi, etc.
- Smart contract platforms – Cryptocurrencies like ETH and ADA are the transactional tokens of smart contract platforms called Ethereum and Cardano respectively. These cryptos are used for any transaction that takes place on these platforms and within their ecosystems.
- Data provider platforms – Platforms like Chainlink and The Graph are designed to act as data providers to all the crypto platforms that require real-world data. Their native tokens, LINK, and GRT respectively are used on the platform for all transactions.
Similarly, many other types of cryptocurrencies serve a specific purpose.
Myth #5 Cryptocurrencies Can Only Be Used By Tech-Savvy People
Contrary to popular notions, it’s not complicated to use cryptocurrencies at all. You do not have to be a tech-savvy person to make transactions using crypto. Granted, if you want to build decentralized applications, you’ll have to learn about blockchains and smart contracts, but if you want just to buy something using crypto or send some crypto to someone else, all you need is the basic know-how.
For instance, if you want to send crypto to another address, all you need to do is log in to your MetaMask wallet, copy-paste the right receiver’s address, and press send!
Myth #6 Cryptocurrencies Are Only Used For Speculation
Every day, the Bitcoin network settles transactions worth approximately $10 billion and has an average of over 305,000 daily transactions. How can we be sure about these numbers? The Bitcoin blockchain is public, and anyone can verify the data.
While it’s possible that some of the transactions can be for speculation, it would not be right to say that all of them are being made just for speculation. Some of these can also be for investment purposes, whereas some could be for remittances or payments.
Myth #7 Cryptocurrencies Are Only Used For Criminal And Illegal Activities
Perhaps the oldest myth about cryptocurrencies is that they are only used for illicit activities. While it’s possible that some individuals could’ve used crypto for criminal and illegal activities, one could make the same argument about the use of fiat currency in similar activities. So why is crypto singled out then? This is mainly because of the anonymity feature associated with cryptocurrencies that are often misjudged.
Moreover, the image of cryptocurrencies took a hit due to negative events such as the Silk Road in which the largest cryptocurrency by market cap, Bitcoin, was included.
As Bitcoin user, Jason Williams correctly said, “The Silk Road demonstrates there is a market but, then again, so does the drug dealer on the corner accepting cash.” Thus, it’s worth remembering that criminals could easily use fiat currency for illicit activities. And, being the most widely used medium of exchange, fiat currency probably is primarily used for such activities.
Myth #8 Cryptocurrencies Don’t Have Any Intrinsic Value
The fact that governments and regulatory authorities haven’t figured out how to categorize cryptocurrencies has led many people to believe that they are just a fad and will disappear soon. As a result, many people also believe that cryptocurrencies don’t have any intrinsic value.
However, many people are widely using cryptocurrencies for different purposes, and thus, they have a value derived from the belief of the holders and the users.
Furthermore, researchers have argued that Proof of Work cryptocurrencies have intrinsic value based on the marginal cost of producing new coins. This is because PoW cryptos are created through a process called mining that involves high amounts of electricity which has an actual cost.
Myth #9 Cryptocurrencies Are Not Secure
Over the years, cryptocurrencies have gained tremendous popularity. However, this has attracted many bad actors to the market who have tried to profit from scams and thefts. While it’s possible for frauds, thefts, and hacks to take place in crypto, it’s important to understand that investors can simply change their behaviour and protect their holdings in a better manner. For instance, instead of holding their crypto assets on exchanges that are more susceptible to hacks, investors can take control of their funds by storing their assets in a combination of cold + hold wallets.
Myth #10 Cryptocurrencies Are A Scam
There is no shortage of scam projects in crypto. The crypto market has seen multiple projects, schemes, and ICOs that have turned out to be fraudulent. While it’s true that cryptos have seen their fair share of scam projects, the same can be said about any other financial market. As investors, we must do our own research and not fall for any such projects.
In Conclusion…
- The only way to separate fact from fiction is to gain more knowledge about a subject. If you’re reading this article, you’re definitely on the right track. We hope our article helped debunk some of your crypto myths.
So what crypto myths have you believed in the past? Did we miss out on any crypto myth?
Comment below and let us know more!
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