Top 5 Misconceptions about Cryptocurrency

The more you understand a topic, the more annoyed you are when all kinds of media replicate false facts and deliberately deceive readers in order to attract attention to themselves. You are probably familiar with this practice: fake news.

As a crypto platform team with many years of experience, we applaud about 80% of all articles, but…

In this article, we will look at 5 mistakes that are often (but not always) spread by eloquent people or well-known media.

Mistake #1 – Spelling

Have you ever come across an incorrect description of cryptocurrencies? Bitcoin or Bitkoin – a familiar spelling mistake, isn`t it?

First of all, the word “bitcoin”. In English, Bitcoin with a capital letter “B” describes the Bitcoin network, and with a small letter “b” describes the unit. Technical literature adheres to this simple rule. The media is often unaware of this difference. More recently, after the release of the book “Cryptoassets” by Chris Burniske and Jack Tatar, this writing has become well-established. In Russian, the opposite is true: Bitcoin as a unit is written with a capital letter, and bitcoin is a network with a small one. Familiar?

• Bitkoin and Etherum?

You see it regularly: Bitkoin, Bytecoin, Bittcoin, Bitkeun – of course, the misspelling of the word “Bitcoin”. Also common are: Etzereum, Etherum, Etherium or Ethereum – again a misconception, since “Ethereum” should be correct.

And yet, we often talk and write Ether, but we look at Ether with bulging eyes, although this is the name of the native token of the Ethereum blockchain.

• Blockchain – what?

And last but not least, the term “blockchain chain”. Since the English word “chain” already means “chain” in Russian, this tautology has no meaning and should be used at best in jest.

Misconception #2 – Cryptocurrencies have No Intrinsic equivalent value

How would you explain to someone the fundamental value of Bitcoin? If you have ever been to Coinmarketrate.com , and studied the description of the PTS, then you will be able to keep up the conversation, and if not?

Let’s start with a simple counter question: does the dollar, euro or ruble have intrinsic value for you?

• Currency function

The functioning of the currency comes down to two key aspects. First, it serves as a store of value, which should retain value for a long period of time. On the other hand, the currency serves as a unit of exchange, since it facilitates, first of all, the transportation of large assets over long distances.

• History

If you look far back in history, the first money was created from rare items such as pearls or shells. For the first time, both functions of money were performed simultaneously.

Later, the money was provided with precious metals, for example, gold coins with state motives were minted. Thus, for the first time, citizens trusted a fixed object of exchange guaranteed by the state.

Ultimately, they trusted not only the object of exchange as an equivalent of value, but also the issuing authority – the state, which accepted the ransom at any time.

Over time, gold and silver coins were replaced by less valuable precious metals or banknotes. This became possible due to the establishment of a trust relationship with the authority that issued the certificate. Currently, institutions such as the state or central banks are trusted. The counter-value is called trust and is not materialistic, but idealistic.

• The cost of Bitcoin

Cryptocurrencies follow a very similar approach. However, thanks to decentralization, it is not the state that is trusted, but the blockchain and the underlying algorithms.

However, Bitcoin can additionally be attributed a material value. This makes it better than a fiat currency.

Bitcoin mining requires mining, which is based on the Proof-of-Work (PoW) algorithm. In order to mine coins, you need to have other values. These values represent the necessary equipment and computing power in the form of energy. This means that an intrinsic value can indeed be attributed to Bitcoin, which can also be estimated in specific terms.

• Superiority of Bitcoin

Ultimately, Bitcoin is superior to fiat currency because, in addition to trust, there is a specific value. The only criticism is that trust in Bitcoin has not yet reached the same level as trust in fiat currency. Of course, it takes time.

However, we can observe that this gap is narrowing, including against the background of the fact that Bitcoin, with a limited number of maximum 21 million. The BTC, in the future, will behave more resistant to inflation and stabilizing the value than most fiat currencies around the world.

Millennials, in particular, also trust cryptocurrencies more than central banks, which is an extremely positive outlook for cryptocurrencies from a demographic point of view.

Misconception #3 – Cryptocurrencies are used only by criminals

Has anyone ever told you that cryptocurrencies are used only for criminal purposes, and that Bitcoin is a crime drug weapon?

A few years ago, almost every second article was devoted to the criminal use of Bitcoin or other cryptocurrencies. There are often articles about the use of the darknet, about blackmail Trojans or about phishing with a ransom demand in cryptocurrencies.

But what is the real situation with the use of cryptocurrencies for criminal activity?

• Types of criminal activity

There are two types of criminal activity, which are mainly carried out using Bitcoin.

One of them is shady business, such as Internet pornography, drug trafficking, terrorism, arms trafficking or fake documents. The anonymity of the Bitcoin network is mainly used to pay bills for these illegal goods or services.

On the other hand, we are talking about the concealment of financial activities, which are mainly related to tax evasion, money laundering and the concealment of profits from financial markets. The anonymity of the Bitcoin network will also be used here.

The fact is that all the mentioned criminal activities in the past were carried out with the help of Bitcoins. However, many cases were solved — this is also a fact, otherwise we would not have known so much about them, would not have read so many articles and would not have witnessed the trials. And the reason for this is simple – VTS are not anonymous, but pseudonymous.

The properties of the Bitcoin blockchain ensure that every transaction on its network is public. Anyone can view transactions, even if at first glance the Bitcoin address does not have a name.

However, if the name is associated with the address, all further operations can be proven beyond any doubt. If no name can be linked to a Bitcoin address, then financial investigators and the Bitcoin community have proven many times that transaction patterns can very clearly point to people or companies. In extreme cases, when transactions are concluded on the exchange, names may be associated with these transactions.

It follows from this that Bitcoins are less profitable for criminal activity than traditional fiat transactions with euros or US dollars. On the contrary, because of the openness of the blockchain, they are even rather uninteresting to the criminal world.

• Anonymous Cryptocurrencies

Nevertheless, there are now truly anonymous cryptocurrencies, such as Monero or Zcash, that have the characteristics that criminals need. It is much more difficult to prove transactions with them than in the case of the Bitcoin network.

The share of criminal use of BTC and other cryptocurrencies is now vanishingly small, compared with legal use. This is another reason why we hardly see negative headlines in the media about cryptocurrencies being used for illegal activities.

Misconception #4 – Cryptocurrencies are a Bubble

You’ve probably been told that Bitcoin is just a huge bubble that is about to burst?

The rapid rise in prices for cryptocurrencies, especially at the turn of 2017/2018, is repeatedly associated with the term “bubble”. The last year of the rapid rise of the military-technical cooperation is no exception. As an example, the Dutch tulip bubble in the 17th century, and the dot-com bubble at the turn of the millennium are cited.

• Bubble Definition

But what does a speculative bubble really mean, and does it apply to cryptocurrencies?

Viewed through a scientific, macroeconomic prism, a speculative bubble means a market situation in which a commodity increases in price in a very short period of time without any fundamental changes. Such strong growth is often accompanied by very high volatility.

The development of prices in the cryptocurrency market reflects the definition of a bubble. However, a clear distinction should be made here between established coins, such as Bitcoin or Ethereum, and other altcoins that have a smaller market capitalization and are outside the TOP of the best cryptocurrencies on the Coinmarketrate.com.

Especially small coins, with low trading volume, showed exponentially increasing price growth (recall DeFi). But there are some where projects have not brought many fundamental results. The Pump & Dump strategies were used by investors by creating a big hype around the coin through various channels and selling large positions by initiators when the price increased several times.

• ICO

ICOs, very recent crypto projects that raised an insane amount of money in 2017 and 2018, are also often associated with a bubble. In many cases, this was true because the fundamental cost was low, and did not move in proportion to the price increase.

Established cryptocurrencies, such as Bitcoin, have an intrinsic value, as we have already discussed above. The growth in the value of BTC was not as extreme as that of many altcoins, as was the volatility.

Bitcoin is also used and applied, for example, as a store of value, as it happens with gold. And are also used for numerous transactions to transfer money from point A to point B at a low price.

Many cryptocurrencies currently have no immediate use, and are based on pilot projects, trial concepts and potential use cases. Every major company in the world is considering the blockchain technology underlying it. The introduction into technical structures, for example, by financial, technological and logistics companies, is probably ubiquitous today.

It is these potential use cases that investors are already evaluating, just like any business plan in a free market economy through discounted returns. Due to the novelty of the technology, the scenarios for the implementation of these plans are extremely wide, so incorrect assessment, hype and subsequent FOMO (fear of missing out) can occur in a very short time.

Ultimately, the cryptocurrency market is a free market, and supply and demand determine the price. An apparent bubble is observed in every immature market, and it is extremely important to attract attention, capital and talent so that the vision of blockchain use cases improves our entire lives.

Misconception No. 5 – Cryptocurrencies are a pyramid scheme

So, in your opinion, are cryptocurrencies a pyramid scheme?

The pyramid scheme refers to the business models of the so-called Ponzi scheme, in which no value is created, but only funds are redistributed between users. Usually, the money received from new users is used to pay off the debts of old users, often even to return them.

• High profitability, no risk?

The promise is often the same: high income in a short time with minimal risk. Usually a “product” is offered that should fulfill exactly this promise.

As a rule, there is never any interaction with the founders of a financial pyramid. Payments are often structured as a one-time or periodic subscription fee.

• Multilevel marketing system

In addition, in most cases there is a well-thought-out marketing system, when a person receives a reward for attracting friends, a higher percentage of profits or benefits. This marketing system often covers several levels, so you also benefit when the friends you brought bring their friends, who in turn bring even more friends, etc.

• More money, more fraud

A pyramid scheme works as long as more money is deposited into the system than is paid out. Upon reaching a critical point, when old users can no longer receive money from new users, the house of cards often collapses abruptly, and the scam is revealed.

Conclusion

It can be argued that cryptocurrencies are not the target of financial pyramids. Although they have some similar characteristics, such as the ability to make high profits in a short period of time, cryptocurrencies follow a long-term, economic promise of value creation.

We want to believe that by explaining the 5 main misconceptions and myths in the cryptocurrency sector, we have created a little more understanding. It is important to emphasize that the traditional media know little about the exact facts in the cryptocurrency universe, and need knowledge, and you have it.

Thanks to this knowledge, you have every opportunity to form your own independent opinion.