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More and more people learn about cryptocurrencies every day. And everyone perceives this new technology in their own way. There are quite a few skeptical people whose opinion is created under the influence of incompetent articles in the media, their own and others’ life experiences, various guesses and assumptions about the essence, origin, further development and possibilities of Bitcoin technology.
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In this article we will try to debunk the most popular myths about Bitcoin and other cryptocurrencies at the moment. Perhaps something will be a revelation to you and shed light on some of the misconceptions that have already formed in society.
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We believe that the technical difficulties involved in starting to use digital money should not be the cause of such myths and other misinformation. Form your own opinion about cryptocurrencies. We hope this article helps you understand a lot.
- Bitcoin is nothing like other electronic money, nothing new.
- Bitcoins do not solve problems that gold and/or fiat money cannot solve
- Bitcoins are not backed by anything and their value depends on the amount of electricity or processing power used to generate them
- Bitcoins are illegal because they are not recognized as a means of payment
- Bitcoins are a form of financial terrorism because they only harm the economic stability of the state and the state currency
- Cryptocurrencies will only facilitate tax evasion, which will severely damage the global economy
- Bitcoins can be “printed” by anyone, hence they are useless
- Bitcoins are useless because they are based on unproven/unproven cryptography
- The first bitcoin users were unfairly rewarded
- 21 million coins are not enough for all of humanity’s needs
- Bitcoins are stored in wallet files, just copy your wallet and get more coins!
- Lost coins can’t be replaced, and that’s bad
- Bitcoin is a giant financial pyramid
- The bitcoin idea won’t work because there is no way to control inflation
- The Bitcoin community is geeks, anarchists, conspiracy theory and gold standard supporters
- Any person with enough computing power can hijack control of the network
- Sales outlets accepting bitcoins are impossible because it takes 10 minutes to confirm the transfer
- No one will generate blocks confirming transfers after mining 21 million coins
- No built-in payment cancellation mechanism, and that’s a bad thing
- Quantum computers will compromise the security of the Bitcoin network
- Generating bitcoins is energy-consuming and bad for the environment
- Shop owners will not be able to set bitcoin prices for goods due to unstable exchange rates
- Bitcoins can be eliminated by governments because they are illegal (like Liberty Dollar) and because they are used by criminals.
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Bitcoin – a scheme for making quick money online or a high-yield investment?
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You can make money just by installing a Bitcoin client on your computer
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1. Bitcoin is something similar to other electronic money, nothing new.
All existing electronic money is tied to national currencies and fully controlled by the state. Money in accounts can be blocked or confiscated. One of the main differences between Bitcoin and all other currencies and electronic payment systems (EPS) is decentralized. You can’t have him:
- “Pre-print” – the number of coins is known in advance, 21,000,000 – and they appear in the network strictly according to a preknown algorithm;
- Destroy – all computers in the network are replaced by a single center, and the integrity of the block chain against various types of attacks is protected by this large computer network
- Change the source code without the consent of much of the community – both the terms of the coin count and any other rules.
- Block or seize – bitcoins are controlled only by someone who has direct access to the wallet. In order to arrest a Bitcoin wallet, you must first arrest its owner.
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2. Bitcoins do not solve problems that gold and/or fiat money cannot solve
The main functions of money, its intrinsic content – it is a measure of value, a means of circulation, accumulation and payment. Gold and fiat money, as monetary units, are inferior in every way to the opportunities that Bitcoin and other cryptocurrencies have to offer.
As a medium of exchange:
- Unlike gold, bitcoins are easy to store, they are randomly split into very small pieces, quickly dispatched.
- Unlike fiat, bitcoins are more secure – they cannot be faked, they do not wear out, they do not need to be reissued.
- All operations in BTC are transparent and can be seen by anyone connected to the Internet. Therefore, the payment made cannot be disputed with the excuse that “the money did not come”.
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As a means of accumulation and savings:
- Cryptocurrencies have a predictable and diminishing issue
- No regulatory center. No documents or permissions are needed to open a Bitcoin “account”.
- You can always keep your Bitcoins under direct control, such as in your home safe.
- There are no national borders for Bitcoin – it can be instantly transferred anywhere in the world where there is an Internet connection.
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3. Bitcoins are not backed by anything; their value depends on the amount of electricity or processing power used to generate them.
When we say that a currency is backed, we mean it is tied to an exchange rate with a “reference” asset. The computing power spent on generating bitcoins, kilowatts of electrical energy can not be used to determine the provision of their value. The value of bitcoins is only based on how valuable they are to people, and the higher the price, the more people will try to generate them, which in turn will increase the difficulty of generation and consequently make them even harder to mine.
The truth is that nothing is secured, including government currencies and gold. The value and value of classic monetary units depend on several factors, the most important of which is trust in the issuer (the central bank), the belief that it will fulfill its obligations. But state defaults (refusal to pay government debt) have occurred even in major economies.
Gold in the eyes of people has had value in itself for thousands of years and does not require collateral.. The situation is similar with Bitcoin – its security is only how valuable it is to people who are willing to accept it as an exchange value. The general law of supply and demand works here. The main factor that determines the value of Bitcoin is its spread and use in economies around the world.
4. Bitcoins are illegal because they are not recognized as a means of payment
For illegal means of payment in Russia there is a concept of money surrogates. Cryptocurrencies do not currently fall into this category. To call them illegal is incorrect.
Following the fundamental rule that “everything that is not prohibited” is allowed, Bitcoin is used as a means of payment all over the world. In many countries, cryptocurrencies are already officially recognized as “private money” or a financial asset that is subject to the general rules of financial regulation.
Basically, Bitcoin is a convenient unit of account, just like any other currency that is equivalent to the value of certain things.
5. Bitcoins are a form of financial terrorism because they only harm the economic stability of the state and the state currency
The claim that Bitcoin was created for terrorist purposes and the destruction of the economy, to harm state stability, is completely untrue.
Terrorism is a form of violence, and it is planned and intended to achieve certain goals. Cryptocurrencies are only one of the financial instruments, the use of which depends on whose hands they are in.
Bitcoin technology provides alternative solutions to many financial security issues. If used wisely, it can contribute to the development of any business and the economy as a whole.
6. Cryptocurrencies will only make tax evasion easier, causing serious damage to the global economy
Right now, even with the large number of transactions going through the wallets of cryptocurrency users, the amounts that can be considered as profit and the basis for claiming taxes on it are in most cases extremely small compared to the same turnover in national currencies.
To say that this is a way to evade taxes and that it will lead to the fall of civilization is fundamentally wrong. The responsibility for this, just as with “regular” currencies, lies with specific people, not technology.
Lawmakers around the world are working on taxation options for Bitcoin transactions. In some European countries (Germany, UK, Netherlands, etc.) transactions in cryptocurrencies are subject to the same taxes as other currencies.
7. Anyone can “print” Bitcoins, so they are useless.
The complexity of Bitcoin mining is too great at the moment, and it is also increasing.
As you know, bitcoins are mined not one at a time, but in blocks, and the reward per block is halved after every 210,000. mined blocks. And if in 2009 the size of the block was 50 BTC, now it is 25 BTC, and in 2016 it will be 12.5 BTC.
Due to the introduction of innovative developments in mining equipment, the total performance of the network has increased manifold, along with the complexity of the. At the moment, the personal computer is not capable of providing the necessary computing power. Profitable mining already requires investments measured in hundreds of thousands and millions of rubles.
The usefulness or uselessness of cryptocurrency is not determined by the fact that everyone can print or mint it, but by whether that cryptocurrency will be used by people in their daily lives.
8. Bitcoins are useless because they are based on unproven/unproven cryptography
Unproven and unproven cryptography is itself an absurd claim. The SHA-256 and ECDSA algorithms, which are used in the working Bitcoin network, are well known industry standards for encryption.
9. The first bitcoin users were unfairly rewarded
The first users of the Bitcoin system were rewarded for using and testing a yet unnecessary and misunderstood technology. They received this reward for taking the risk of losing not only their time but also their personal funds. There’s a lot of injustice in this world, and rewarding first-time users hardly needs to be discussed.
Right now, about 2/3 of the 21 million coins mined and held by users. If you become a bitcoin owner in the near future, a little later you will also be considered one of the “first users” for someone.
10. 21 million coins are not enough for all of humanity’s needs
You are probably forgetting that one Vitcoin represents 100 million indivisible units.
21 million coins is just over two quadrillion (209999999997690000) maximum possible units. It is assumed that by the time the last Bitcoin is mined, there will be parts of the coin in circulation – milliBitcoin (mBTC) and microBitcoin (µBTC). However, denominations with ratios of 1:10, 1:100 and so on are also possible.
11. Bitcoins are stored in the wallet files, just copy the wallet and get more coins!
Bitcoins are not stored in wallet files, they are stored in a global distributed network, and the wallet is only the means to access that network. The wallet.dat file, which is created when you install the wallet, contains private keys that give you the right to dispose of your coins only.
Knowing the public address of the wallet, (where coins are sent) does not make anyone the owner of the wallet, no one can dispose of other people’s coins.
12. Lost coins cannot be replaced, which is bad
There are a large number of lost coins known today that will likely never be used again. But why do you think that’s a bad thing.
Coins are lost if the user has lost access to their wallet, the wallet.dat file where their private keys are stored. In most cases it is the user’s own fault.
Remember, the security of your coins is in your wallets and your responsibility.
Why is there no mechanism for replacing lost coins?
Because it is impossible to distinguish between lost coins and coins that are currently unused (temporarily, or in cold storage). Loss of coins is an unpleasant situation for the user, but it is not a disadvantage for the crypto-economy. In this case, lost coins act as an additional advantage of the deflationary model – the fewer coins there are, the more expensive a single Bitcoin will be.
“Lost coins make everyone else slightly more expensive.. Think of them as a gift to all.”. Satoshi Nakamoto
13. Bitcoin is a giant pyramid scheme
Pyramids are created in any currency. The technology should not be confused with various Internet projects that may accept Bitcoin as deposits and are pyramid schemes. And people, hungry for quick money, believing in unbelievable promises, for some reason blame the technology, not those who deceived them.
Also, you shouldn’t see cryptocurrency only as a source of income. Bitcoin, first of all, is a means of payment, it is a technology, a way to generate new coins, and every transaction, every wallet is part of one huge system.
All of this has nothing to do with the notion of a “pyramid scheme.”. There is no regulatory, revenue-generating center, just people building a new economy.
14. The bitcoin idea won’t work because there is no way to control inflation
Inflation is simply the planned or natural increase in prices over a period of time, which is usually the result of a depreciating currency. This is one of the foundations of the modern credit economy, built on a constant increase in the amount of money.
Why and who would control inflation when the ways of issuing bitcoins and fiat currencies are completely opposite? A credit economy is not the only possible model.
The key point here is that bitcoins cannot be devalued by a dramatic increase in inflation by any person, organization, or government, because there is no way to arbitrarily increase supply.
In fact, because of its growing popularity, a scenario of increasing demand for Bitcoin is more likely, leading to a steady rise in the exchange rate and deflation. Deflation in cryptoeconomics is the reduction in the value of goods, when more goods and services can be purchased with fewer coins.
15. The Bitcoin community are geeks, anarchists, conspiracy theorists, and the gold standard
In the early days of Bitcoin, this was indeed the case. Satoshi did his best to remain politically neutral, but his comments on technological solutions showed his libertarian sensibilities and hacker mindset.
Yifu Guo, the creator of the first mining systems, who has long worked with Bitcoin and knows it inside out, reflected this sentiment in an interview, saying that their initial slogan was “better to go too far than to do too little..
“Bitcoin, if we can explain it properly, is consonant with the libertarian viewpoint. Although I’m better at writing code than talking” – Satoshi Nakamoto.
However, real “sharks of capitalism” – retail chains, IT-corporations, venture funds and even some banks – came to the cryptocurrency business when they saw an opportunity to make money.. Therefore, in recent years, the number and influence of true cryptoanarchists has been steadily decreasing. And whether that’s a good thing, I don’t know.. After all, new ideas are best developed by enthusiasts, not administrators.
16. Anyone with enough computing power can hijack the network
As the number of generating nodes grows, it becomes increasingly difficult to do so.
Even assuming that someone could take control of the network, the opportunities they would gain would be so negligible and incompatible with the gigantic cost of doing so, that the reasons for such an attack could only be ideological.
Under no circumstances will he be able to use someone else’s bitcoins. The attacker can only cancel his own recent transfers and freeze other people’s transactions. This very expensive attack is not worth such small benefits, so there is no rational economic reason to conduct it.
Even now the purchase and operation of equipment capable of carrying out such an attack would cost at least $150-200 million and in its operation would constantly consume up to 50 megawatts of electrical power – the consumption of a large industrial enterprise.
17. Bitcoin-accepting outlets are not possible because it takes 10 minutes to confirm the transfer
If payment for an item is sent via electronic or banking systems, it can take several minutes to several days. In addition, the bank can cancel the transaction and the transaction will not happen at all. But even these circumstances did not prevent the emergence of online commerce.
In fact, Bitcoin wallets typically wait for 3 to 6 confirmations before the coins are available for transactions, which means that the wait is about an hour. If the payment is made on the spot, with bitcoins the seller already understands the irreversibility of the transaction and does not need to wait for the required number of confirmations.
Many online stores use a prepaid system. The customer can fund the account and then spend bitcoins from it.
In addition, payment gateways have been created to help instantly receive confirmation of receipt of payment from another country so that goods can be shipped quickly. Payment gateways act as an intermediary, confirming this transaction and speeding up the entire process. When using such gateways, the seller receives the currency of his country, not Bitcoin, in his account.
Additionally, the Coinbase payment gateway allows Bitcoin users to make purchases at many online stores that accept MasterCard.
18. After mining 21 million coins, no one will generate blocks confirming transfers
When generation costs can’t be covered by the reward for creating the block, miners will be able to profit from the transfer fee. In the more than 100 years that will elapse before issuance is almost nullified, turnover in the Bitcoin network is expected to be more than enough to provide remuneration to miners on commissions alone.
Also, bitcoin holders will be interested in generating new blocks, because if they stop generating, their coins will become worthless.
19. There is no built-in mechanism to cancel payment, and that’s too bad
Failure to cancel payment is a built-in fraud protection mechanism. It is your sole responsibility to be careful when sending, to trust your recipients, and to keep your bitcoins safe.
Organizations like PayPal have a responsibility to prevent fraud. If you buy something on eBay and the seller doesn’t ship it to you, PayPal takes the money from the seller’s account and returns it to you. This strengthens the eBay economy as shoppers become aware of their limited risk and make even risky purchases.
Suppose you arranged to sell your item or buy bitcoins, wired money (you sent the item) to a scammer who sent you the coins, but then reversed the transaction.
If you have bitcoins, they are only yours. If you allow a payment cancellation mechanism, it will allow another person to collect your funds. Either you have full control over your funds or protection against fraud, but not both at the same time.
20. Quantum computers will disrupt Bitcoin network security
Yes, it is theoretically possible.. Quantum computers capable of this do not currently exist. If they are created, if the security of the Bitcoin network is threatened, developers will be able to move the network to post-quantum cryptography. There will be some disruption to the network, but it will be back up and running in no time.
It should be taken into account that not only cryptocurrencies use cryptography, but the entire Internet – stores, payment systems, exchanges, and most importantly – banks. That is, the entire modern financial system will be threatened.. Cryptocurrencies due to their flexibility will be able to overcome the crisis faster than others.
21. Bitcoin generation is energy-consuming and bad for the environment
Large amounts of electricity are required to maintain the necessary computing power to mine Bitcoin. But there’s no need to exaggerate. The energy consumption of the entire Bitcoin network does not exceed the needs of a small city of 100,000 people.
If we compare Bitcoin mining, for example, to the development of any mineral deposits, as well as any consequences of human activity, then this process can be called one of the most economical and environmentally friendly on the planet.
It should not be forgotten that all modern financial systems, such as numerous server rooms and branch networks of large banks, consume no less energy. However, no one accuses them of violating environmental regulations.
22. Store owners won’t be able to set bitcoin prices for goods because of unstable exchange rates
Owners of stores and outlets, large online resources, mostly use payment gateways to accept bitcoin, which transparently convert payments from Bitcoin to local currencies and back. Sellers set the cost of goods in their country’s currency.
Buyers of the product pay in bitcoins, which are converted to that currency, which does not affect the value of the product – sellers always get the result they want, regardless of bitcoin exchange rates and volatility. Some sellers, such as Overstock, keep a portion of the cryptocurrency proceeds for themselves, thus assuming the risk of volatility.
23. Bitcoins can be eliminated by governments because they are illegal (like Liberty Dollar) and because they are used by criminals.
It is impossible to liquidate Bitcoin because it has no centralized control mechanism: there is no single information repository and centralized management, and there is no point whose failure (prohibition) could cause the entire network to go out of business; no government can order the elimination of a cryptocurrency.
Maximum forceful government intervention could look like banning the use of cryptocurrency for payments in a particular country; this is unpopular in every way and unlikely to be massive.
An attempt to issue an alternative currency in the U.S. (Liberty Dollar) has been deemed fraudulent and counterfeit. Bitcoins are not used as physical coins and there are no assurances that they are secured.
Criminals can use either Bitcoin or any electronic payment system, although statistics show that most crimes are conducted through cash, 99 percent of them in U.S. dollars.
24. Bitcoin – a scheme for making quick money online or a high-yield investment?
Bitcoin became widely known due to the rapid growth of its value in 2013 and numerous “success stories” in the media. The more attractive the story of another Bitcoin millionaire looks, the more people hope that Bitcoin will quickly bring them superprofits, the more often other fraudsters will appear who use Bitcoin as bait for their criminal purposes.
It is quite possible that investing in bitcoin is a good investment, as its value can rise very substantially. Just as there is a possibility that Vitsoin will cost nothing. Investing in cryptocurrency is unlikely to impress you with the results in the near future; most likely, over the next few years, the bitcoin rate will be unpredictable. The right investment is not about making a quick profit, and you should not see bitcoin as a way to get rich quick and risk-free.
For the average non-investor, the recommendation is to buy some coins, at a convenient rate, with a little bit of money available, and put them in your wallet for cold storage. The main thing – do not count on the fact that this investment will bring fabulous wealth in the near future. The time of rapid growth of tens and hundreds of times, as it was a few years ago, is already gone – then worked the so-called “low base effect”, when the growth in the price of Bitcoin on the scale of the global economy was ridiculous. But now its capitalization is already measured in billions of dollars, so there will be no astronomical growth.
25. You can make money just by installing a Bitcoin client on your computer
By installing the Bitcoin client, you won’t start earning anything.
Once upon a time, in the early days of Bitcoin, people would put a wallet on their computer or laptop, turn on the mining feature, and mine the cryptocurrency on the CPU. At the moment, only specialized farms, which occupy large areas and consume huge amounts of electricity, can have sufficient computing power for profitable bitcoin mining.
This method of making money – the generation of coins on a home computer – is no longer available to the average person. Nevertheless, some forks can be mined on processors and even hard drives. But the profitability of this activity rarely even covers the cost of electricity.