13 Cryptocurrency Myths

February 18, 2014

There are a lot of wild ideas about cryptocurrencies out there. Some are outright falsehoods, others misperceptions. Learn more about the truth behind the most common myths, so you can better understand what cryptocurrencies are about!
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1. Cryptocurrencies Are Pyramid Schemes

FALSE. The algorithm behind Bitcoin means that there is no advantage or disadvantage to bringing in new people. Also, if you use Bitcoin as a currency and not a speculation vehicle, stability is a good thing. Cloud mining platforms, on the other hand, are an entirely different story.

2. No One Knows Who Invented Bitcoin

TRUE. Satoshi Nakamoto is the pseudonym of a person or a group that invented the algorithm behind Bitcoin. Since the currency is math-based and not part of a cult of personality, the identity of the creator is irrelevant, though.

3. Bitcoin Has Been Repeatedly Hacked

FALSE. Bitcoin itself is quite secure and has never been hacked. Many wallets, cloud mining companies, and crypto exchanges, however, have been hacked in cyber heists. In nearly all cases, it has been the result of inadequate security.

4. The Value Of Cryptocurrencies Is Based On The Processing Power They Take

FALSE. There is no consistent way to measure that. The value is based on the demand and the prices offered at cryptocurrency exchanges. Higher demand means higher prices.

5. Cryptocurrencies Are Illegal

MIXED. Bitcoin, as the ultimate cryptocurrency representative, is currently illegal solely in Bolivia, Ecuador, Kyrgyzstan, and Bangladesh, which is a tiny sample on the global scale.

6. Cryptocurrencies Are Only For People Involved In Illegal Activities

FALSE. They are no more likely to be used in illegal activity than cash. Cryptocurrencies offer the possibility of anonymous transactions and have been used in illicit endeavors, but none more than regular fiat currency.

7. Cryptocurrencies Are Doomed Because You Can’t Control Inflation

MIXED. Many advocates say that decentralization is actually a hedge against inflation. Moreover, some cryptocurrencies are built around the idea of long-term stability. Only time will tell whether cryptocurrencies will defeat inflation in the long run.

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8. Cryptocurrencies Are All Fiat Currencies

MIXED. For one currency to be fiat, it doesn’t just have to lack the backing of a physical commodity. It also needs to be declared by the government as legal tender. Bitcoin, for example, is only half-fiat, as it lacks the government approval, but its value is based on the relation between supply and demand.

9. Bitcoin Is The Only Important Alternative Currency

FALSE. Different cryptocurrencies have different benefits. Currencies like Ethereum, Litecoin, Ripple, Zcash, and Monero all “make the cut.”

10. Cryptocurrency Fans Are All Weirdo Anarchists

FALSE. Many people from all walks of life see the benefit of currencies that are not linked to government banks. Adherents include Bill Gates, Overstock CEO Patrick Byrne, and politician Al Gore. As the technology becomes more well-known, more people will become comfortable with it.

11. You Can’t Charge Back Bitcoin Transactions

TRUE. But, those who have been burned by powerful processors like PayPal consider this a good thing. Once a Bitcoin or other cryptocoin is in your possession, it belongs to you. This adds a layer of trust and security.

12. Quanmputers Can Break Bitcoin’s Security

THEORETICALLY TRUE. But, no computer with the processing power to compromise Bitcoin has been invented yet. Traditional banks would be just as vulnerable to attacks from such a machine anyway. In reality, the weakest part of a security system are the end users. Therefore, keep your wallets secure and create strong passwords.

13. Mining Cryptocurrencies Harms The Environment

FALSE. The argument that the processing power needed to mine Bitcoins is excessive and dangerous in any major way simply doesn’t hold water. On the other hand, take into account what’s needed to mine gold or transport currency by bank trucks. Also, there are many coins that require less processing power and are more “eco-friendly.”

 

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