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- Feb 28, 2020
It's me, Karl from Bitcasino Let's continue with crypto lessons.
As you might know, Bitcoin has been around for a decade now. But there continue to be myths surrounding the cryptocurrencies.
Let me help you understand some of these.
5 CRYPTO MYTHS
1. Crypto is used for illegal activities
This is one of the most common misconceptions surrounding Bitcoin or crypto in general. Lots of people, fueled by the media, believe that digital coins are mainly used by people performing online illicit deals. Because of its pseudonymous nature and lack of regulation from the government, it’s clear why digital coins look enticing to criminals.
In an article published by Forbes in 2018, they mentioned an earlier study saying that half of Bitcoin transactions were associated with dirty activities. A blockchain analysis startup called Elliptic reveals that a huge number of illegal business was conducted through the Bitcoin blockchain from 2013 to 2016.
While these facts cannot be denied, it’s also important to note that these kinds of schemes are not only exclusive to crypto. Compared to the number of criminal activities done with fiat currencies ever since the invention of money, this number certainly cannot compare.
Additionally, it’s worth remembering that it’s the activities that are illegal, not the coins used to deal with them. Anyone can buy crypto and it is entirely up to those people how they are going to use it.
2. Crypto is not regulated
There’s also a myth that the government doesn’t acknowledge and regulate cryptos, making it prone to hacking and all forms of tampering. The lack of a safety net easing the public’s rational worries is essentially what led to the birth of this misconception.
That is, however, not entirely true. Contrary to what others think, governments do recognize the power and potential of the blockchain industry. Different nations vary in terms of reaction to the rise of this new technology, proven by the existence of both strict and favourable regulations.
Some countries embrace crypto with open arms, letting its growth flourish on its own with little to no restriction. Take Japan, for example. They are very forward with their legislative approach, saying that they have no intention of curbing its growth with too many regulations. Japan protects its consumers while promoting innovation.
Other countries have a different and more restrictive approach such as China. They are wary of online schemes that’s why strict laws that protect its people from illegal crypto fundraisings are held in place. Digital asset exchanges who don’t comply are then blocked by the government.
In the United States of America, however, the use of crypto is well promoted. There are favourable regulations in place that exempt cryptos from state security laws, money transmission statutes, and other state regulatory requirements. Additionally, as reported by the SEC in 2017, “virtual” organizations are subject to federal securities law. The IRS considers digital coins as property and not a currency so they can be taxed properly.
On the other side of the Atlantic ocean, European countries hold a positive outlook with regards to cryptos. The European Union has an optimistic approach with digital coins. There, Bitcoin is considered as a currency instead of a commodity and its transactions are exempt from VAT.
3. The Government will shut down crypto
As opposed to this misconception, governments cannot shut crypto down because they run on blockchain technology that is decentralized in nature. There is no central point that they can declare close and out of business.
Crypto uses a distributed ledger of transactions instead of storing them in one location. That’s why it will be nearly impossible to close down the blockchain that is composed of a network of validators spread throughout the world.
This myth probably came from the fall of peer-to-peer-file-sharing software Napster in the early 2000s. After issues about the trade of sharing copyrighted music on its network without proper license and authorization, Napster was shut down by the US government.
People need not fear, however, because the blockchain is not completely like the P2P software. Napster was easily shut down since there are point persons that act as the company’s central authority. This is what crypto lacks. It’s decentralized and the power over the system is equally distributed among its community members.
4. You can do whatever you want with crypto
Of course, you can do whatever you want with your purchased crypto, it’s yours. But that’s depending on which kind of digital coin you bought. There are certain limitations set in place. Each crypto is created with a designated purpose in mind that targets specific markets.
Bitcoin is created to be a digital currency for people to be used when conducting transactions through the Internet. Its more contested rival, Ethereum, offers ledger technology based on the Bitcoin blockchain where companies can build new programs. Ripple, on the other hand, caters to financial institutions by providing a network for banks and money providers.
The fact is, not all coins are created equally. Also, they do not have the same value as you might see on digital currency exchanges such as BTCXE. So yes, in a way, you can do whatever you want with crypto provided that they are within the limitations set by each coin’s designated use.
5. Crypto is prone to hacks
People tend to be extra cautious when putting their financial data online and for a good reason. Good thing crypto is protected by cryptographical functions used in a blockchain. This is what makes digital assets more secure than banks when it comes to protecting data.
Crypto consists of a network of peers who fact-checks every single transaction that goes on the blockchain. A blockchain is a public ledger kept by every user of a network. It contains the complete history of transactions ever since the blockchain started running.
Each block contains two hashes of data: the first one consists of the data from the block that preceded it and the second hash contains new data from the newly minted block. Simply put, whenever a block is added onto the chain, the data of the previous block is passed onto the new block, creating a chain of transactions.
With the blockchain’s unalterable and irreversible function, no one can input whatever they want and alter the information contained in the list. Once a transaction is confirmed, it’s already set in stone.
What makes blockchain technology so secure is the fact that instead of just a single point confirming and storing all the data, all transactions are validated and agreed upon via a consensus of a network of people.
So, if ever someone wants to alter something from the blockchain, like increase the number of Bitcoins sent to a specific address, for example, they have to change the data from millions of computer programs owned by millions of validators spread throughout the globe. After all, there is safety in numbers.
CRYPTO MYTHS: FACT OR FICTION?
As crypto entered the mainstream and its popularity rose higher and higher, myths both positive and negative rose as well. Though some hold a bit of truth in them, others are purely fictional. The way media portrayed Bitcoin as a get-rich-quick miracle helped give birth to all these misconceptions as well as the paralyzing fear of the unknown or something relatively new.
That’s why it’s important to do your own research and get to know what something really is about before you believe anything you see online.
Check also our previous cryptocurrency lessons:
Lesson 1: Get to know the coins
Lesson 2: Where to buy and keep cryptocurrencies
Lesson 3: A guide to stablecoins
Lesson 4: How to keep your crypto safe
Lesson 5: Different cryptocurrency wallets
Lesson 6: The best cryptocurrency exchanges
Lesson 7: How to earn and increase Bitcoins
Trading cryptocurrencies carries a high level of risk, and may not be suitable for all investors. Before deciding to trade cryptocurrency you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.