Every day more and more people learn about cryptocurrencies. And everyone perceives this new technology in their own way. There are a considerable number of skeptical people whose opinion is formed under the influence of incompetent articles in the media, their own and other people’s life experience, various conjectures and assumptions about the essence, origin, further development and possibilities of Bitcoin technology.
In this article, we will try to debunk the most popular myths about bitcoin and other cryptocurrencies at the moment. Perhaps something will become a discovery for you and shed light on some of the misconceptions that have already formed in society.
We believe that the technical difficulties associated with the start of the use of digital money should not be the reason for the emergence of such myths and other unreliable information. Form your own opinion about cryptocurrencies. We hope that this article will help you understand a lot.
1. Bitcoin is something similar to other electronic money, nothing new.
All existing electronic money is tied to national currencies and is fully controlled by the state. Money in accounts can be blocked or confiscated. One of the main differences between Bitcoin and all other currencies and electronic payment systems (EPS) is decentralization. It cannot be:
- •“Reprint” – the number of coins is known in advance, 21,000,000 – and they appear on the network strictly according to a previously known algorithm;
- •Destroy – all computers on the network replace a single center, and the integrity of the block chain from various types of attacks is protected by this large computer network
- •Change the source code without the consent of the majority of the community – both the conditions for the appearance of the number of coins, and any other rules.
- •Block or Seize – Bitcoins are controlled only by someone who has direct access to the wallet. To arrest a Bitcoin wallet, you must first arrest its owner.
2. Bitcoin does not solve problems that gold and/or fiat money cannot solve
The main functions of money, their internal content is a measure of value, a means of circulation, accumulation and payment. Gold and fiat money, as monetary units, are inferior in all positions to the opportunities that Bitcoin and other cryptocurrencies can offer.
As a medium of exchange:
- •Unlike gold, bitcoins are easy to store, arbitrarily split into very small pieces, and sent quickly.
- •Unlike fiat, bitcoins are more reliable – they cannot be counterfeited, they do not wear out, they do not need to be reissued.
- •All operations in BTC are transparent and can be seen by anyone connected to the Internet. Therefore, the perfect payment cannot be disputed, justified by the fact that “the money did not come.”
As a means of accumulation and savings:
- •Cryptocurrencies have a predictable and declining supply
- •They do not have a regulatory center. To open an “account” in the Bitcoin network, no documents and permissions are needed.
- •You can always keep your bitcoins under direct control, for example in a home safe.
- •For Bitcoin, there are no state borders – it can be instantly transferred to anywhere in the world where there is an Internet connection.
3. Bitcoins are not backed by anything, their value depends on the amount of electricity or computing power spent on their generation
When we say that a currency is backed by something, we mean its pegging to the exchange rate with some “reference” asset. The computing power spent on generating bitcoins, kilowatts of electrical energy, cannot be used to determine the security of their value. The value of bitcoins is based only on how much they are valued by people, and the higher the price, the more people will try to generate them, which in turn will lead to an increase in the complexity of generation and, as a result, even more difficulty in mining.
The truth is that nothing is backed, including government currencies and gold. The cost and value of classical monetary units depends on several factors, the most important of which is the trust in the issuer (central bank), the belief that it will fulfill its obligations. But defaults of states (refusal to pay the state debt) happened even in large economies.
Gold in the eyes of people has been of value in itself for thousands of years and does not require collateral. The situation is similar with Bitcoin – its security is only how valuable it is for people who are ready to accept it as an exchange equivalent. This is where the general law of supply and demand comes into play. The main factor determining the value of Bitcoin is its distribution and use in the economies of different countries of the world.
4. Bitcoins are illegal because they are not recognized as a means of payment
For illegal means of payment in Russia, there is the concept of money surrogates. Cryptocurrencies do not currently belong to this category. Calling them illegal is incorrect.
Following the fundamental rule “everything that is not prohibited is allowed”, Bitcoin is used all over the world as a means of payment. In many countries, cryptocurrencies are already officially recognized as “private money” or a financial asset that is subject to the general rules of financial regulation.
By and large, Bitcoin is a convenient unit of account, like any other currency, equivalent to the value of certain things.
5. Bitcoins are a form of financial terrorism because they only harm the economic stability of the state and the state currency
The statement that Bitcoin was created for terrorist purposes and the destruction of the economy, to harm the foundations of the state, is completely untrue.
Terrorism is a form of violence, and it is planned and aimed at achieving certain goals. Cryptocurrencies are only one of the financial instruments, the use of which depends on whose hands they are in.
Bitcoin technology provides alternative solutions to many financial security issues. With proper use, it can contribute to the development of any business and the economy as a whole.
6. Cryptocurrencies will only facilitate tax evasion, which will cause serious damage to the global economy
Now, even with a large number of transactions passing through the wallets of cryptocurrency users, the amounts that can be considered as profit and the basis for claiming taxes from it are in most cases extremely small compared to the same turnover in national currencies.
To say that this is a way of tax evasion, and that it will lead to the fall of civilization, is fundamentally wrong. The responsibility for this, just as with “ordinary” currencies, lies with specific people, not technology.
Legislators in all countries are working on options for taxing transactions carried out using Bitcoin. In some European countries (Germany, Great Britain, the Netherlands, etc.), transactions with cryptocurrencies are subject to the same taxes as in other currencies.
7. Bitcoins can be “printed” by anyone, therefore they are useless
The complexity of mining Bitcoin is currently too high, in addition, it is increasing.
As you know, bitcoins are mined not one at a time, but in blocks, and the block reward is halved after every 210,000 blocks mined. And if in 2009 the block size was 50 BTC, now it is already 25 BTC, and in 2016 it will be 12.5 BTC.
Due to the introduction of innovative developments in mining equipment, the overall network performance has increased many times over along with the complexity. Currently, a personal computer is not able to provide the necessary computing power. Profitable mining already requires investments, measured in hundreds of thousands and millions of rubles.
The usefulness or uselessness of a cryptocurrency is determined not by the fact that everyone can print or mint it, but by whether this cryptocurrency will be used by people in everyday life.
8. Bitcoins are worthless because they are based on unverified/unproven cryptography
The untested and unproven concept of “cryptography” is in itself an absurd statement. The SHA-256 and ECDSA algorithms used on the live Bitcoin network are well-known industry standards for encryption.
9. The early adopters of bitcoin were unfairly rewarded.
The first users of the Bitcoin system were rewarded for using and testing a technology that was still not needed and incomprehensible to anyone. They received this reward for taking on the risks of losing not only time, but also personal funds. There is a lot of injustice in this world and the rewards for early adopters are hardly worth discussing.
Now about 2/3 of the 21 million of all coins have been mined and are with users. If you become a bitcoin owner in the near future, a little later, for someone, you will also be considered one of the “early adopters”.
10. 21 million coins is not enough for all the needs of mankind
You are probably forgetting that one bitcoin is 100 million indivisible units.
21 million coins is just over two quadrillion (2099999997690000) of the maximum possible units. It is assumed that by the time the last Bitcoin is mined, parts of the coin will be in circulation – milliBitcoins (mBTC) and microBitcoins (µBTC). However, denomination with coefficients of 1:10, 1:100 and so on is also possible.
11. Bitcoins are stored in wallet files, just copy the wallet and get more coins!
Bitcoins are not stored in wallet files, they are stored in a global distributed network, and the wallet is only a means of accessing this network. The wallet.dat file, which is created when you install the wallet, contains private keys that give you the right to dispose of your coins only to you.
Knowing the public address of the wallet (where the coins are sent) will not make anyone the owner of the wallet, no one can dispose of other people’s coins.
12. Lost coins cannot be replaced, which is bad.
To date, a large number of lost coins are known, which, most likely, will never be used. But why do you think it’s bad.
Coins are lost if the user has lost access to his wallet – the wallet.dat file, where private keys are stored. In most cases, this is the fault of the user himself.
Remember that the safety of your coins is in your wallets and is your responsibility.
Why is there no mechanism for replacing lost coins?
Because it is impossible to distinguish between lost coins and coins that are not currently used (temporarily, or are in cold storage). Losing coins is an unpleasant situation for the user, but this is not a minus for cryptoeconomics. In this case, the lost coins are an additional advantage of the deflationary model – the fewer coins there are, the more expensive one bitcoin will cost.
“Lost coins make everything else a little more expensive. Think of them as a gift to everyone.” Satoshi Nakamoto
13. Bitcoin is a giant pyramid scheme
Pyramids are created in any currency. The technology should not be confused with various projects on the Internet that can accept Bitcoin as deposits and be financial pyramids. And people greedy for quick money, believing in unrealizable promises, for some reason blame the technology, and not those who deceived them.
Also, it is not necessary to see in cryptocurrency only a source of income. Bitcoin, first of all, is a means of payment, it is a technology, a way to generate new coins, and every transaction, every wallet is part of one huge system.
All this has nothing to do with the concept of “financial pyramid”. There is no regulatory center interested in generating income, there are just people who are building a new economy.
14. The bitcoin idea won’t work because there’s no way to control inflation.
Inflation is simply a planned or natural increase in prices over a period of time, which is usually a consequence of the depreciation of a currency. This is one of the foundations of the modern credit economy, built on the constant increase in the amount of money.
Why and for whom to control inflation, if the ways of issuing bitcoins and fiat currencies are completely opposite? The credit economy is not the only possible model.
The key point here is that bitcoins cannot be depreciated by a sharp increase in inflation by any person, organization or government, as there is no way to arbitrarily increase the supply.
In fact, due to the increasing popularity, the scenario of an increase in demand for Bitcoin is more likely, which will lead to a constant increase in the exchange rate and deflation. Deflation in cryptoeconomics is a decrease in the cost of goods, when a greater number of goods and services can be purchased for a smaller number of coins.
15. The Bitcoin community is made up of geeks, anarchists, conspiracy theorists, and the gold standard.
At the very beginning of the formation of Bitcoin, this was indeed the case. Satoshi did his best to remain politically neutral, but his comments on technological solutions showed him to be libertarian and hacker-minded.
The creator of the first mining systems, Yifu Guo, who has worked with Bitcoin for a long time and knows it from the inside, reflected these sentiments in an interview, saying that their original slogan was “it is better to go too far than to do too little.”
“Bitcoin, if we can properly explain it, is in tune with the libertarian point of view. Although I write code better than I talk” – Satoshi Nakamoto.
However, sensing an opportunity to make money, the real “sharks of capitalism” came to the cryptocurrency business – retail chains, IT corporations, venture funds and even some banks. Therefore, in recent years, the number and influence of true crypto-anarchists has been steadily declining. And it is not known whether this is good. After all, new ideas are best developed by enthusiasts, not administrators.
16. Anyone with enough computing power can take control of the network
As the number of generating nodes grows, it becomes more and more difficult to do this.
Even if we assume that someone will be able to take control of the network, then the opportunities that he will receive will be so insignificant and incompatible with the gigantic costs of this that the reasons for such an attack can only be ideological.
Under no circumstances will he be able to use other people’s bitcoins. An attacker can only cancel their own recent transfers, as well as freeze other people’s transactions. This very expensive attack is not worth the small advantage, so there is no rational economic reason to carry it out.
Already, the purchase and operation of equipment capable of carrying out such an attack will cost at least $150-200 million and will constantly consume up to 50 megawatts of electrical power during its operation – this is the consumption of a large industrial enterprise.
17. Points of sale that accept bitcoin are not possible as it takes 10 minutes to confirm the transfer
If the payment for the goods is sent via electronic or banking systems, this may take several minutes or several days. In addition, the bank may cancel the transaction and the transaction will not take place at all. But even these circumstances did not interfere with the development of online commerce.
In fact, Bitcoin wallets usually wait between 3 and 6 confirmations before the coins become available for transactions, which means that it will take about an hour to wait. If the payment is made on the spot, then when using bitcoins, the seller already understands the irreversibility of the transaction and does not need to wait for the required number of confirmations.
Many online stores use a prepaid system. The client can replenish the account and then spend bitcoins from it.
In addition, payment gateways have been created that help to instantly receive confirmation of receipt of payment from another country in order to be able to quickly send goods. Payment gateways act as an intermediary, confirming this transaction and speeding up the whole process. When using such gateways, the seller does not receive Bitcoin in his account, but the currency of his country.
Additionally, the Coinbase payment gateway offers bitcoin users to make purchases at many online stores that accept MasterCard plastic cards.
18. After mining 21 million coins, no one will generate blocks confirming transfers
When the generation costs cannot be covered by the block reward, miners will be able to profit from the transfer fees. It is expected that in more than 100 years, which will pass before the emission is almost completely zero, the turnover in the Bitcoin network will be more than sufficient to ensure that miners are rewarded with commissions alone.
Also, bitcoin holders will be interested in generating new blocks, since if the generation stops, their coins will become useless.
19. There is no built-in cancellation mechanism, and this is bad
The inability to cancel a payment is a built-in fraud protection mechanism. Responsibility for care when sending, trust in recipients, as well as responsibility for the security of your bitcoins, lies solely with you.
Organizations like PayPal have a responsibility to prevent fraud. If you buy something on eBay and the seller doesn’t ship the item to you, PayPal deducts the money from the seller’s account and returns it to you. This strengthens the eBay economy as buyers recognize the limits of their risk and make even risky purchases.
Suppose you agreed to sell your goods or purchase bitcoins, transferred funds (sent goods) to a scammer who sent you coins, but then canceled this transaction.
If you have bitcoins, then they are only yours. If you allow the payment cancellation mechanism, this will enable another person to take your funds. Either you have full control over your funds, or fraud protection, but not both at the same time.
20. Quantum computers will break the security of the Bitcoin network
Yes, theoretically it is possible. Quantum computers capable of this do not currently exist. If they are created, if the security of the Bitcoin network is at risk, developers will be able to transfer the network to post-quantum cryptography. This will lead to some interruptions in the network, but after a while it will work as before.
It should be borne in mind that cryptography is used not only by cryptocurrencies, but also by the entire Internet – shops, payment systems, exchanges, and most importantly – banks. That is, the entire modern financial system will be under threat. Cryptocurrencies, due to their flexibility, will be able to overcome the crisis faster than others.
21. Bitcoin generation is energy-consuming and harmful to the environment
A large amount of electrical energy is needed to maintain the necessary computing power for Bitcoin mining. But there is no need to exaggerate. The energy consumption of the entire Bitcoin network does not exceed the needs of a small city with a population of 100,000 people.
If we compare Bitcoin mining, for example, with the development of any mineral deposits, as well as with any consequences of human activity, then this process can be called one of the most economical and environmentally friendly on the planet.
It should not be forgotten that all modern financial systems, such as numerous server rooms and branch networks of large banks, consume no less energy. However, no one accuses them of violating environmental regulations.
22. Store owners will not be able to set prices in bitcoin for goods due to the unstable exchange rate
Owners of shops and retail outlets, large Internet resources, mainly use payment gateways to accept bitcoin, which transparently convert payments from bitcoin to national currencies and vice versa. Sellers set the cost of goods in the currency of their country.
Buyers of goods pay in bitcoins, which are converted into this currency, which does not affect the cost of goods – sellers always get the desired result, regardless of the bitcoin rate and its volatility. Some sellers, such as Overstock, keep a portion of the crypto revenue for themselves, thus taking on the risks of volatility.
23. Bitcoins can be liquidated by governments because they are illegal (like the Liberty Dollar) and because they are used by criminals.
It is impossible to liquidate Bitcoin, since it does not have a centralized control mechanism: there is no single information repository and centralized management, and there is no point, the failure (prohibition) of which could lead to the failure of the entire network; no government will be able to order the liquidation of cryptocurrencies.
The maximum forceful state intervention may look like a ban on the use of cryptocurrency for settlements in a particular country; this method, unpopular in all respects, is unlikely to be widespread.
An attempt to issue an alternative currency in the United States (Liberty Dollar) was regarded as fraud and counterfeiting. Bitcoins are not used as physical coins, there are no assurances that they are backed.
Criminals can use both Bitcoin and any electronic payment system, although, according to statistics, the largest number of crimes are carried out with cash, in 99 percent of cases – US dollars.
24. Bitcoin – a scheme for quick earnings on the Internet or a highly profitable investment?
Bitcoin gained great fame thanks to the rapid growth in value in 2013 and numerous “success stories” in the media. The more attractive the story of the next bitcoin millionaire looks, the more people hope that Bitcoin will quickly bring them super profits, the more often the next scammers will appear using bitcoin as bait for their criminal purposes.
It is quite possible that investing in bitcoin is a good investment, as its value can grow very significantly. Just as there is a possibility that bitcoin will be worth nothing. Investing in cryptocurrencies is unlikely to impress you with results anytime soon; most likely, over the next few years, the bitcoin rate will be unpredictable. A sound investment is not about making a quick profit, and you should not look at bitcoin as a way to get rich quickly and without risks.
For a simple layman who is not an investor, we can recommend the following: with a convenient exchange rate and some free money available, buy some coins and put them away for cold storage in your wallet. The main thing is not to count on the fact that this investment will bring fabulous wealth in the near future. The time of rapid growth by tens and hundreds of times, as it was several years ago, has already passed – then the so-called “low base effect” worked, when the rise in the price of Bitcoin on the scale of the global economy was ridiculous. But now its capitalization is already measured in billions of dollars, so there will be no astronomical growth.
25. You can earn money by simply installing a Bitcoin client on your computer
By installing a Bitcoin client, you will not start earning anything.
Once upon a time, at the very beginning of the development of Bitcoin, people put a wallet on their computer or laptop, turned on the mining function and mined cryptocurrency on the processor. At the moment, only specialized farms that occupy large areas and consume huge amounts of electricity can have sufficient computing power for profitable bitcoin mining.
This way of earning – generating coins on a home computer – is no longer available to ordinary people. However, some forks can be mined on processors and even hard drives. But the profitability of this occupation rarely covers even the cost of electricity.