Biggest Myths About Bitcoin

  • 2022-02-17

Bitcoin, the first cryptocurrency, has been gaining traction and adoption since its introduction in 2009. Over the years, Bitcoin has evolved as a means of payment, with major brands, across industries, joining the Bitcoin revolution. From a software giant like Microsoft to Starbucks – one of the biggest chains of coffeehouses globally to online electronics leader Newegg, Bitcoin has gained acceptance as a mode of payment.

Apart from evolving as a payment method, Bitcoin is perceived as a cryptocurrency that will potentially replace gold, government-based fiat currency, and credit cards. In addition, it is opined that Bitcoin will transform the existing (and traditional) paradigm, making it decentralized, more transparent, secure, peer-to-peer, and efficient. As for the banking industry, Bitcoin will empower people to be their own banks and gain complete control over their transactions. 

The discussions and projections about Bitcoin have led to various myths, and it is important to separate facts from fiction. The following are the top six myths about Bitcoin and the truth about them. 

Myth 1: Bitcoin’s volatility prevents it from being a store of value

Although Bitcoin is relatively more volatile than government bonds, it is not bad. In the 1970s, gold was highly volatile as it was served from the monetary system. The price of gold increased 10 times in a decade and then decreased by 60%, remaining on the lower side for decades. Even the most volatile assets can offer higher returns. 

As of now, Bitcoin is in a “price discovery” akin to gold in the 1970s, where significant variations in the price were common. 

Myth 2: Government will kill Bitcoin

While countries like Russia, Belarus, and Nigeria are resistant to Bitcoin, the U.S., Canada, and other Western countries are receptive to Bitcoin. For example, the Commodity Futures Trading Commission – the regulator of commodity markets – is a global innovator to regulate Bitcoin derivatives; the top U.S. securities regulator taught a course on cryptocurrencies at MIT; and the U.S. Office of the Comptroller of the Currency permitted banks to offer custodial services for Bitcoin. Furthermore, central banks are concerned about financial stability, more than anything else.

Myth 3: Bitcoin does not have any real value

While Bitcoin is not backed by any physical asset, such as gold, no fiat currency, including the U.S. dollar, has such backing. Bitcoin has a limited supply cap of 21 million, which makes it resistant to inflation. In addition, the amount of new Bitcoin being mined is decreasing over time. Bitcoin halving occurs every four years, reducing the block rewards given to network miners to half. This harnesses the basic principle of scarcity, which means as the supply of Bitcoin decreases, its price increases over the long term. From a penny to ~$40,000 (as of Feb 2022), the price of Bitcoin has grown manifold. 

Myth 4:  Bitcoin is not secure

Various misconceptions associated with the security of Bitcoin arise from attacks on third-party services or businesses using Bitcoin. Hacks of early Bitcoin companies with inefficient security processes and occasional data breaches have led to people questioning the security of Bitcoin. However, the truth is that the Bitcoin network has worked securely with 99.9% uptime since its introduction in 2009. Numerous security experts and computer scientists examine the open-source code of Bitcoin, ensuring its security. Furthermore, Bitcoin was the first currency to solve the problem of double-spending, thereby serving as a trustless peer-to-peer digital currency.

Myth 5: Bitcoin is bad for the environment

Bitcoin mining is an energy-intensive process, but it cannot be concluded that it is bad for the environment. The latest research Ark Investment Management, a New York-based fund, unveils that Bitcoin mining is comparatively more efficient than conventional banking and gold mining globally. 

A large part of the energy required for Bitcoin mining comes from renewable energy resources, such as solar, wind, and hydro. According to Cambridge Bitcoin Electricity Consumption Index, the number ranges from 20 percent to over 70 percent. 

Myth 6: Bitcoin has no real-world use

Critics claim that Bitcoin is not useful in the real world, which is not true. Bitcoin’s utility includes making payments across the globe, without the involvement of any bank, financial institution, or payment processor. Institutional investors are increasingly using Bitcoin as a gold-like hedge against inflation. 

A growing number of publicly traded companies, such as Square and Tesla, have bought Bitcoin worth billions of dollars for better asset management. 

Like any other form of money, Bitcoin can be misused, but since its transactions are recorded on a decentralized ledger, it is easier for authorities to track illicit activities as compared to a traditional financial system. 

To sum up, Bitcoin is a catalyst of innovation and can potentially transform the global financial system. Money, which has evolved from cowrie shells to precious metals and paper notes, is becoming digital. Investing in Bitcoin can help people ride the next wave of digital transactions and transit to a decentralized world that is more transparent, secure, efficient, and free from any bank or financial institution. 

However, with anything new, there are more likely to be various misconceptions. It is important to understand and differentiate between facts and myths to make the right decisions and choices. 

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