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10 Common Cryptocurrency Myths

29 Feb, 2024 11 min read
10 Common Cryptocurrency Myths

There are numerous cryptocurrency myths in the public domain today. Cryptocurrencies exist in various forms, and there have been significant developments in these networks since the early stages of Bitcoin. Consequently, the technical aspects of these assets can appear daunting, leading to widespread myths and rumours. Misconceptions surrounding crypto have negative implications for the industry on multiple levels. Therefore, it is incumbent upon every crypto user to debunk these falsehoods whenever they come across them. Here are the top 10 cryptocurrency myths and realities that require your attention as a responsible user.

Cryptocurrency Is Unethical

One of the major misconceptions about cryptocurrency is that it's primarily used for illegal activities. This belief largely stems from the early days when cryptocurrencies like Bitcoin were predominantly utilised on the dark web, mainly through networks such as Silk Road, facilitating significant illegal activity before being shut down. The individual behind Silk Road, known as Dread Pirate Roberts, received a life sentence for his involvement in the illicit market.

Fiat currency remains the currency of choice for criminals worldwide and is used daily in far more criminal cases than cryptocurrency. However, these undeniable facts are often not emphasised by media outlets seeking sensational stories.

While it's true that some individuals use cryptocurrencies to engage in unlawful activities, this constitutes only a tiny fraction—less than 1%—of overall cryptocurrency users. Despite being easy to debunk, this crypto myth is spread by those aiming to restrict access to digital assets.

The truth about cryptocurrency is that most digital asset usage revolves around legitimate purposes such as storing value or reducing transaction costs. Cryptocurrencies now serve numerous lawful functions and have been adopted by reputable organisations like IBM, which has been operating public and private blockchains for years.

Security Concerns

cryptocurrency myths and realities

The negative crypto trading information may create the impression that keeping your crypto safe from hackers is nearly impossible. However, in reality, securing your crypto is relatively easy. A few key steps can minimise the risk of your crypto being stolen.

It's essential to be discreet about your holdings and avoid bragging online or, in general, about how much crypto you have. Numerous stories highlight how hackers and thieves target individuals based on social media posts with information about crypto holdings.

Furthermore, there are still individuals who resort to traditional theft methods. These people pose a severe threat and often target individuals who openly flaunt small fortunes in cryptocurrency. Remember that even the strongest passkey won't protect you if someone demands it at gunpoint.

While extreme measures might not be necessary for everyone, using a hardware wallet for cold storage of tokens is highly recommended for traders. These devices are affordable and incredibly effective at preventing hacking attempts.

One of the main advantages lies in its requirement for physically pushing a button to execute transfers. Because hackers can't push this physical button without possessing the device itself, using this low-cost method ensures the safety of your cryptocurrency assets remains intact – making it an essential step for every trader.

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Volatility Misunderstandings

Due to the fluctuating nature of Bitcoin and other cryptocurrencies, there's a growing demand for products that offer some of the benefits of crypto without the price swings that deter many investors.

Stablecoins were created to blend digital payment systems' speed and convenience with the stability of traditional financial transactions. They provide a digital currency option distinct from crypto and aim to minimise price fluctuations.

While certain stablecoins are tied to conventional (fiat) currencies like USD, euro or yen at a one-to-one rate, others are supported by tangible assets such as gold or real estate. This has led people to believe that all stablecoins are linked to physical assets, making it one of the most common myths about cryptocurrency.

Cryptocurrency as a Bubble

misconceptions about cryptocurrency

The concept of a bubble in the financial system typically refers to a situation where the price of an asset exceeds its underlying value due to speculative trading rather than fundamental factors. Bubbles can burst when investor sentiment changes rapidly, leading to a sharp price decline as investors sell off their holdings.

The debate surrounding Bitcoin and other cryptocurrencies as potential financial bubbles is a widely discussed crypto myth in the financial world. While some see cryptocurrency as an innovative asset with significant growth potential, others argue it's speculative, risky and lacking underlying value. Additionally, concerns about criminal activities such as money laundering are often associated with crypto assets.

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Environmental Impact Clarification

The environmental impact of blockchains and cryptocurrencies has been one of the most misleading facts about cryptocurrency. According to The Harvard Business Review, it's important to note that energy consumption doesn't directly translate into carbon emissions. The specific energy mix used by computers mining Bitcoin plays a significant role in determining its environmental impact.

Furthermore, many crypto blockchains actively address these facts on cryptocurrency by reducing energy consumption and carbon emissions. For instance, Ethereum's upgrade reduced more than 99% of its carbon emissions in 2022. Additionally, Polygon announced initiatives such as "Going Beyond" as part of their Green Manifesto commitment to eliminating all network carbon debt from inception and achieving carbon negativity in 2022.

Anonymous Nature of Cryptocurrency

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One of the most enduring myths about cryptocurrency is its complete anonymity. This misconception arises from a few different factors. Firstly, most networks don't mandate any form of identification. In the past, blockchain forensic firms were scarce due to low demand. Consequently, individuals began to believe that their activities on public blockchains like Bitcoin couldn't be traced back to them in the future.

This fallacy has been debunked time and again. Public blockchains such as Bitcoin may not necessitate your identity, but they leave behind a comprehensive trail of transactions since their inception. These transaction specifics can be amalgamated with other data, such as your IP address, to construct a more detailed user identity profile.

Most cryptocurrencies aren't anonymous. However, a subset is known as privacy coins, which employ technologies like zero-knowledge roll-ups to significantly complicate and increase costs associated with identifying an account holder or transaction details.

Regulatory Compliance

One of the most commonly misleading facts about crypto is that digital assets operate without regulation. However, governments worldwide are actively working to regulate this new asset class. As of January 2024, some governments have established frameworks to protect users, while others are still developing regulations. For example, the European Union has implemented measures requiring crypto service providers to identify and prevent illicit cryptocurrency activities.

In the United States, the regulatory landscape is changing. In 2022, a new framework was introduced, empowering existing market regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The SEC has already exercised its regulatory authority by filing numerous cases against crypto-focused businesses and projects.

Despite these developments in regulations and authorities granted to regulators, ongoing conflicts between regulators and broker-dealer investors show that there is still evolution within US regulation processes.

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Cryptocurrency's Limited Use

Cryptocurrencies are breaking the myth of limited use as the industry evolves. Here are expanding use cases and adoption of cryptocurrencies beyond just payments and transfers:

  • Decentralised Finance (DeFi). Cryptocurrencies play a central role in the DeFi movement, which aims to recreate traditional financial systems such as loans and interest in a decentralised manner.
  • Smart Contracts. Platforms like Ethereum allow for programmable contracts that automatically execute transactions when certain conditions are met.
  • Non-Fungible Tokens (NFTs). These unique tokens represent ownership of specific items or pieces of content used for digital art, music and more.
  • Remittances. Cryptocurrencies enable quick cross-border transfers with relatively low fees, making them an attractive remittance option.
  • Online Shopping. Some online retailers and service providers accept cryptocurrencies as a form of payment.
  • Investment and Trading. Cryptocurrencies have become popular investment assets; numerous crypto exchanges offer trading services.
  • Charitable Donations. Some charities now accept donations in cryptocurrencies, providing new funding avenues for these organisations.
  • Gaming Industry Integration. Cryptocurrency integration within the gaming industry is witnessed through in-game purchases and rewards.
  • Identity Verification. The blockchain technology behind cryptos is utilised for decentralised identity verification.

The use of digital currencies is increasing. In 2023, 40% of adults in the United States possess cryptocurrency, a rise from 30% in 2022. This pattern extends beyond the US, with Central & Southern Asia taking the lead in grassroots adoption according to the Global Crypto Adoption Index for 2023.

Cryptocurrency as a Tool for Criminals

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The crypto myth that virtual currency is mainly used for illicit activities, like money laundering and terrorism financing, arises from key factors. 

  • Firstly, the pseudonymous nature of many crypto assets allows users to carry out transactions without disclosing their identities. This anonymity can lead to the belief that virtual currencies offer a safe space for criminals to conduct illegal activities without being traced.
  • Secondly, the cryptocurrency space is relatively new and rapidly evolving. This has resulted in a lack of understanding among the public and regulators. The features of some cryptocurrencies, such as anonymity and decentralisation, have been misunderstood as inherently linked to criminal activities.

While it's basic information about cryptocurrency's usage for illicit purposes like money laundering, it's essential to acknowledge that traditional forms of currency are also commonly involved in illegal transactions.

Furthermore, most virtual currency transactions are legitimate, and the technology itself can be used to improve transparency and traceability. As regulations continue developing, efforts are being made to address these misconceptions, ensuring responsible use within legal boundaries.

Long-Term Viability and Innovation

While cryptocurrencies have limitations, they also present diverse uses and potential benefits. The crypto information about its limited use isn't entirely accurate for several reasons:

  • Payment Systems. Cryptocurrencies such as Bitcoin and Ethereum were created to enable transactions without relying on traditional forms of currency like cash, debit cards, credit cards or checks. However, conducting transactions using cryptocurrencies has become costly and slow due to their volatility.
  • Value. One of the most interesting facts about cryptocurrency is that digital assets hold value for many individuals and can be secure when appropriate security measures are implemented. For instance, shortly after its inception in 2009, Bitcoin was valued at thousandths of a cent. Its popularity continued to soar over the years; by 2021, it had reached $69,000 per Bitcoin.
  • Wide Range of Uses. Blockchain technology utilised by cryptocurrencies offers diverse applications across industries, including finance, medicine, energy, etc.
  • Investment. Investment funds focused on Bitcoin and other cryptocurrencies have seen significant growth. Even major financial institutions such as Goldman Sachs and Morgan Stanley have entered the cryptocurrency arena.

These are the 10 major cryptocurrency myths and realities you should know when investing in digital assets or deciding whether to choose fiat or digital money for payments and savings. As time passes, more individuals discover the truth about cryptocurrency and add digital assets to their investment portfolios. Whenever you hesitate about whether crypto trading and investing are the right choices, consider the misconceptions about cryptocurrency. These cryptocurrency facts should help you make an informed decision. 

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