Separating Myth from Fact: The Truth About Bitcoin and Crypto

Myths about cryptocurrencies are still rife — specifically Bitcoin and the crypto market as a whole — despite cryptocurrency adoption reaching unprecedented levels. In this blog, we will focus on the most popular of these misconceptions and see what out of them is at least partially correct and what is pure fiction.

•  Not All Cryptocurrencies Are Created Equal: Each cryptocurrency serves a unique purpose and is fueled by different forces.
• Crypto Is Secure but Requires Awareness: Blockchain technology is highly secure; however, users' safety is dependent on how they handle their private keys.
• Crypto Isn’t That Complicated: Investing in crypto does require doing your research, but the technological elements of things are simple to learn.
• Bitcoin Is legitimate. The more time passes, the more recognition Bitcoin gets as a legitimate decentralized currency.
• Bitcoin Isn’t fully anonymous. It can be traced to transactions if so required, but not to a normal use.
• Bitcoin mining can be a profitable venture. For mining to be effective, though, the work must be done in regions where energy costs are low and the computer equipment is efficient.
• You can own part of a Bitcoin. Bitcoin doesn’t need to be purchased in whole, meaning you can acquire as little or as much as you can pay for.  

The crypto industry is still rife with myths, despite its steady rise in popularity. From the misconception that crypto has only been used by fraudsters for illegal activities to scepticism over the entire industry’s stability, there is no shortage of misconceptions that prevent people from exploring the world of cryptocurrencies further. We’re here to address some of the most common myths.

Misconception: All Cryptocurrencies Are Used for Illicit Purposes

Many prospective users are prevented from taking up cryptocurrency due to the misconception that the anonymity of it causes transactions to be used in criminal activity, drugs, money laundering, etc. Therefore, starting in cryptocurrency is seen first and foremost as a legal risk.  

False.

First of all, it is worth noting that crypto transactions are not 100% anonymous and can be traced back to the identity of individuals if there is legal trouble. So while there are individuals who try to use cryptocurrencies for criminal purposes due to being semi-anonymous, the percentage of such users, much less one who will actually be successful, is massively overstated. In fact, statistics show they represent just a small fraction of all cryptocurrency activity. Readers can safely assume that most of these users are acquiring cryptocurrencies for real use cases, including trading and investing.

Myth: Cryptocurrencies Are a Bubble

The reason for crypto price variability that happens very often is quite simple, the cryptocurrencies are simply a speculative bubble and sooner or later it is going to pop in the same way other financial bubbles have in history.

False.

While cryptocurrency prices can experience volatility from things like liquidity and other factors like supply and demand, it doesn’t mean they can be classified as being a component of a traditional bubble. The blockchain tech can serve different purposes and entire industries rely on blockchain to operate. With applications of blockchain emerging across sectors from financial services to supply chain management, it would appear that cryptocurrencies are not just speculative assets but rather an underlying component of this technological transformation.

Myth: All Cryptocurrencies Are the Same

Public discussion about cryptocurrencies is only about crypto, as if they were one and the same thing, meaning that there were some idea that it is all the same thing and have the same purpose.

False.

There are many different cryptocurrencies with different usages. While Bitcoin, for instance, is viewed as an asset that is analogous to digital gold, Ethereum is supported by a whole ecosystem of decentralized applications. And then there’s the difference between coins and tokens, the latter being related to specific services (utility tokens) or even real-world assets (governance tokens), to name but a few. Each cryptocurrency has its own unique function within the larger ecosystem, and you should learn more about them before you start investing.

Myth: Cryptocurrencies Are Vulnerable

However, since cryptocurrencies are linked to a computer system, then they are relatively easy to hack and hence steal both the crypto assets as well as the individual information underlying those crypto assets which makes it a risky option for fiat currencies.

False.

Most digital currencies are developed with secure, multi-level secure technologies, such as Blockchain and many are decentralized. When security breaches happen in crypto, they are most often at a personal level when someone does not properly handle their private keys or passwords, which would have been easily prevented with best practices storage.

Myth: There Is No Regulation on Cryptocurrencies

There is a general assumption amongst those who know that cryptocurrencies are decentralized that it means there is no way to impart regulations, and therefore, crypto exists in a vacuum outside of legislative control.

Partially True.

Cryptocurrencies were intended to be entirely decentralized and free from governmental intervention, but regulations come into play more and more and governments have started regulating the use of cryptocurrencies by introducing laws pertaining to crypto exchanges, tax earnings, anti-money laundering, and anti-fraud measures. However, it does differ from region to region, and therefore, research the pertinent market before investing.

Myth: Blockchain Technology Is the Same as Cryptocurrency 

There are few who believe that blockchain and cryptocurrency are just one and the same thing, and some more who even feel that while one does exist without the other, they still very much exist to support one another and nothing else.

False.

Let’s start by noting that these two are different words for a reason — and they are indeed different ideas. Many cryptocurrencies do use blockchain and rely on it, but not all cryptocurrencies really need it to operate. Similarly, blockchain is used in crypto but it is not limited to crypto only. It is a decentralized ledger platform commonly employed in supply chain management, voting systems, secure data sharing, etc.

As both the first and so far the most popular cryptocurrency globally, Bitcoin tends to be affected by alternatively bullish and bearish speculation from both inside and outside the crypto space. These fears are especially prevalent during major price surges in Bitcoin. There are a lot of common misconceptions, and we will walk through all of the major ones you will have seen and why they are misconceptions.

Myth: Bitcoin is a Scam

Bitcoin has existed for over a decade, and continues to grow in value, yet many believe it is a scam. This perception is fueled by its connection to speculative investments and stories in the media of massive scams in the cryptoworld.

False.

However, while it is correct that Bitcoin does not function in the same manner that the more traditional fiat currencies do, it does not by any means make it a scam. Its difference from fiat currencies — it works as a decentralized system with no central authority — is considered its greatest strength; if anything. Although — of course! — you need to remain vigilant, the same can be said for any kind of online activity. Also, keep in mind that Bitcoin is recognized not only by investors but also by major businesses and even institutions.

A Myth: Bitcoin Transactions Are Fully Anonymous

It is a myth that surrounds cryptocurrencies, and Bitcoin in particular — the myth that Bitcoin is dangerous to use due to its anonymity and thus inability to trace it back to a particular person in case of an illegal or fraudulent action.

Partially True.

Although Bitcoin transactions are nominally anonymous, they are not technically anonymous — at least, not most of them. As covered in the crypto myths section above, although a Bitcoin address does not reveal the identity of its user to other users, law enforcement agencies and professional analytics platforms can track Bitcoin transactions back to individuals.

Myth: You Have to Own Whole Bitcoin in Order to Use It

The single largest point of confusion when people play around with the idea of crypto is to assume they can only get in on Bitcoin, which usually scares them off due to the price of a whole unit. This misconception gives the illusion that Bitcoin only goes to those who can pay the full bill.

Partially True.

You can purchase only a fraction of a Bitcoin, not an entire coin. Bitcoin exists in different unit sizes, the smallest one being a "satoshi” (0.0000001BTC). This means you can buy, use, and hold Bitcoin in whatever quantity — as little or vast — you choose. So, for example, if Bitcoin is $30,000, you can buy just $100 of Bitcoin, or about 0.0033 BTC. It is not unlike purchasing any other, fiat currency, in which you simply exchange whatever amount of currency you have, e.g., $100, into its equivalent in any other currency, say, the Pound or Euro.

Does crypto's energy consumption make it unsustainable?

Despite requiring a relatively high amount of energy for crypto mining — and Bitcoin mining in particular — several cryptocurrencies are touted as energy-friendly alternatives through their use of proof-of-stake (PoS) mechanisms, so their models require a fraction of the power to the blockchain than the proof-of-work (PoW) system further associated with Bitcoin.

Do these transactions happen in an instant?

This will vary but it is determined by several factors — including the cryptocurrency itself and whichever exchange you are using. Though, network congestion, transaction fees, etc. and the blockchain in usage can get the time vary occasionally.

Is it possible to hack crypto from the blockchain?

So, it’s virtually impossible to hack the blockchain itself because of its decentralized structure. The majority of hacks occur through exchanges due to personal negligence when a user does not handle the private key information correctly or falls prey to a phishing attack.

Smart contracts are just like regular contracts: True or False?

Not quite. Smart contracts are lines of code that automatically execute the terms of an agreement on a blockchain. 

Do I need internet access to access crypto?

They store your private keys offline and, keep your crypto safe from phishing attacks. Attempting to send or receive transactions without a net connection is futile, however, you can still hold and view assets with your most secure wallet.

Nordom does not guarantee the reliability of the content of this site and shall not be held liable for any errors, omissions, or inaccuracies. The opinions and views expressed in any articles are solely those of the author(s) and do not reflect the opinions of Nordom or its management. The information provided on this website is for informational purposes only, and it does not constitute investment, financial, or trading advice or an endorsement of any of the products and services discussed. A qualified professional should be consulted prior to making financial decisions. Please visit our Nordom Website Policy to learn more.