Cryptocurrencies have grown in popularity in recent years. The crypto market is thought to be profitable, but it is nothing short of a roller-coaster ride. With the recent price drop, many cryptocurrencies have already vanished. However, the ingenious technology that underpins cryptos will change the nature of money and finance.
With so much jargon and other unfamiliar terms in the crypto-sphere, it can be difficult for new investors to understand the crypto-sphere. In today’s column, we’ll debunk some of the most common cryptocurrency myths.
Myth No. 1: Cryptocurrency will be widely used for payment
Cryptocurrencies like Bitcoin and Ethereum were created to make payments without the use of fiat currencies, credit cards, debit cards, or anything else “centralized.”
Satoshi Nakomoto, the pseudonymous Bitcoin creator, clearly states in the white paper that it aims to facilitate transactions between “any two willing parties to transact directly with each other without the need for a trusted third party.”
While many restaurants around the world and even countries like El Salvador accept Bitcoin as a form of payment for daily necessities, Bitcoin or any other cryptocurrency cannot be considered a default mode of payment. But why, you might ask?
The simple reason is that facilitating transactions on crypto incurs a ‘transaction fee,’ which is significantly higher than the current banking systems. Second, it is excessively slow; it may take more than 10 to 15 minutes for a single transaction to occur. This is since every transaction must be validated and is subject to the number of crypto validators or miners on a blockchain. Some cryptocurrencies, such as Ethereum, process transactions more quickly, but they can also be quite expensive.
Third, cryptos are volatile, which means they can experience wild swings. So, if you have one Bitcoin worth Rs 20 lakh today, you may not get the same value for it a week later. It could be significantly less or significantly more, depending on the current market and price rates.
For example, in late April, a Dogecoin cost 20 cents. It tripled in the next two weeks before dropping to half its peak value ten days later. It’s as if a $10 bill could buy you a cup of coffee one day and a lavish meal at a fancy restaurant the next.
Myth 2: Blockchain and Bitcoin are the same things
A common misconception is that Blockchain and Bitcoin are the same things. When people talk about blockchain, they immediately think of Bitcoin. Blockchain, on the other hand, is a technology that is essentially a distributed database that records transactions that occur on it. Cryptocurrencies are one of the user cases for this technology.
Blockchain technology is powerful because it is immutable, which means it cannot be edited or modified. As previously stated, cryptocurrency is one of Blockchain’s use-cases. These are blockchain-based algorithms with intrinsic value that can be exchanged for fiat. Furthermore, cryptocurrencies are protected by cryptography, making it impossible for anyone to change their value.
Myth 3: Crypto is only used for illegal or criminal purposes
Cryptocurrencies are used for more than just illegal activities. It has some legitimate uses, such as trading—buying and selling and facilitating not only monetary but also contractual transactions. Simply put, the Ethereum blockchain has a feature known as a smart contract that allows any type of transaction to take place on its network.
Non-fungible tokens (NFTs), for example, are based on smart contracts. It is essentially a contract that is designed algorithmically and runs automatically when a specific condition is met. A good example would be how NFTs grant exclusive owner’s rights through smart contracts. Users can include their name on the smart contract, which, once again, cannot be changed; this is what distinguishes cryptocurrency.
However, the number of crypto-related crimes has increased. According to crypto analytics firm Chainalysis, cybercriminals laundered $8.6 billion in cryptocurrency in 2021, a 30% increase from 2020. As a result, governments around the world are forming task forces to combat crypto crime and advancing legislation.
Myth 4: Crypto transactions are anonymous
When a new user hears the word crypto, the first thing that comes to mind is anonymity. While crypto provides anonymity, your personal information, such as your name, address, and contact information, can still be traced.
Any Blockchain transaction is recorded with the sender’s and receiver’s crypto-wallet addresses. All transactions coming and going through this wallet are recorded on the blockchain, which is open to the public. However, central authorities have made KYC mandatory for exchanges, so your wallet address will eventually be tracked down. As a result, crypto transactions are also known as pseudo-anonymous transactions.
Myth 5: Cryptocurrencies will fade away
Last but not least, cryptocurrencies are frequently referred to as a “big bubble” that will eventually burst and cease to exist. This comes after European Central Bank President Christine Lagarde described cryptocurrencies as “based on nothing.”
However, this is not entirely accurate. It is speculative to predict whether crypto will fade or not, but it is critical to recognize that it is a technology, not just some price-based coins to which it is being compared. It is causing profound changes in money and finance.
A specific crypto coin may fade away, but the technology that it is based on will not. However, the crypto-industry is still evolving, with newer things like the recent craze about NFTs and metaverse—all fueled by cryptocurrency—coming into the picture.
It’s fascinating to see how mainstream companies have become interested in crypto and, in some cases, invested in it. With sensible regulations, cryptocurrency can be a win-win situation for everyone.
