10 things people get wrong about blockchains and cryptocurrency

Regardless of the millions of words that have been written and thousands of videos that have been made about cryptocurrencies and blockchain technology, it seems there is still a whole lot of confusion and urban folklore around the subject.

We have handpicked the top ten crypto fallacies that we have heard people say, write or ask over the last few years and explained why they are wrong, wrong, wrong.

You have to own a whole Bitcoin!

You can even get a T-shirt stating the contrary, but it’s curious how this misconception has hung around. Dollars are divisible, as are many other things we use as units of account, and Bitcoin is no exception.

One Bitcoin is, in fact, very divisible indeed. The smallest unit is known as a satoshi, after Bitcoin’s mysterious creator, Satoshi Nakamoto, and there are 100 million satoshis in every Bitcoin. You can own as many — or as few — satoshis as you want.

Cryptocurrencies have experienced significant growth in popularity since they were first introduced in 2009. They are somewhat obscure and difficult to understand; this confusion brings about myths, wrong ideas, and rumors regarding these digital currencies.

KEY TAKEAWAYS:

Nearly all cryptocurrency transactions are used for legal activities.

Cryptocurrencies have value to some people and are secure if appropriate security steps are taken.

By definition, cryptocurrencies are money, but not "real" (as in physical or backed by governments) money.

Cryptocurrencies may not just be a fad; many use cases are being explored and developed that suggest otherwise.

Digital Currencies Are Only Used for Illicit Activity

One of the oldest and most pervasive myths about digital currencies is that they are most commonly used for illicit activity. While it's true that digital currencies have been used by individuals with nefarious goals in mind, as well as by criminal organizations, the same could be said of any form of money used throughout history.

According to Chainalysis—a company that assists investigators in cryptocurrency crimes with blockchain data analysis—the number of cryptocurrency transactions related to illicit activities fell in 2021 (the latest report) to 0.15% of all cryptocurrency transactions. Out of this small number of transactions, 82% consisted of cryptocurrency scams.

Most cryptocurrency transactions are conducted with legitimate and legal intentions.

It's important to note that governments and the international community are cracking down on cryptocurrency use by criminals and organized crime. Many countries have adopted cryptocurrency anti-money laundering and countering the financing of terrorism measures; agencies and teams have been established to combat the use of cryptocurrencies in these illegal activities.

 For instance, in the U.S., the National Cryptocurrency Enforcement Team (NCET) investigates and prosecutes criminal cryptocurrency uses.

Digital Currencies Don't Have Value

Value is a subjective concept—a person, community, or society may place value on an object that another puts in the recycle bin. For example, the first cryptocurrency, Bitcoin, was valued shortly after its launch in 2009 at thousandths of a cent. Its popularity continued to rise, and in 2021, it reached $69,000 per Bitcoin. Its rise in value demonstrates that how an asset is perceived by society is essential in establishing whether it has value.

Ethereum, the blockchain ecosystem that powers the cryptocurrency ether (ETH), is the building block for non-fungible tokens, decentralized finance applications, and other technological advancements in the ownership of digital assets. ETH may not have the dollar value that Bitcoin does, but its utility and potential give much more value to a company developing financial products and services that use the Ethereum blockchain and smart contracts.

Investors and enterprises have begun holding cryptocurrencies for use in finance, investment, venture capital, and many others. For example, Galaxy Digital Holdings is a financial service and investment company with approximately $2.0 billion in crypto (digital) assets under management as of July 2022.

Cryptocurrencies have experienced significant growth in popularity since they were first introduced in 2009. They are somewhat obscure and difficult to understand; this confusion brings about myths and rumors regarding these digital currencies.

In no particular order, here are some of the most common cryptocurrency myths, accompanied by an examination of facts to help you decide whether there is any truth or falsehood to them.

KEY TAKEAWAYS:

Nearly all cryptocurrency transactions are used for legal activities.

Cryptocurrencies have value to some people and are secure if appropriate security steps are taken.

By definition, cryptocurrencies are money, but not "real" (as in physical or backed by governments) money.

Cryptocurrencies may not just be a fad; many use cases are being explored and developed that suggest otherwise.

Cryptocurrencies Aren't Secure

The key technology behind cryptocurrency is the blockchain. A blockchain is a distributed database secured with encryption techniques and technology that is very difficult to break. As transactions are entered into the blocks in the blockchain, previous transaction information is recorded in the new blocks and encrypted.

The chain continues to build on each previous block, and a community of automated verifiers has to agree that the information recorded in the transactions is valid. The encryption, linked blocks, and consensus mechanisms make it nearly impossible to change information in the blockchain to "steal" cryptocurrency.

The weakness lies in how cryptocurrency is accessed and stored, such as in cryptocurrency wallets or centralized exchanges that facilitate transactions. It is entirely possible to send cryptocurrency from one user to another without worry, but the platforms and software used to store and access it can be hacked or tampered with.

Contrary to popular belief, cryptocurrency mining is not the process of creating a token—it is the process of validating transactions and creating new blocks in the blockchain. Cryptocurrency is the reward given for opening a new block.

There are some very safe methods you can use to ensure your cryptocurrency is safe. For instance, you can keep your crypto asset keys off the exchanges and in cold storage. When you want to use it, transfer only the amount you want to use to your hot wallet through a secure, wired connection on a non-mobile device like a personal computer.

Digital Currencies Are Bad for the Environment

There is good reason to be concerned about the impact digital currencies have on the environment. Some cryptocurrencies employ a consensus mechanism that uses computational power and large amounts of energy to verify and validate transactions. One token, Bitcoin, has become more popular and valuable as time has passed; large mining operations emerged to take advantage of the rise in popularity and corner the crypto-mining market.

Each of these mining farms requires massive amounts of energy to power the mining rigs, adding up to a total network energy consumption equaling that of some small countries.

 However, the environmental impact greatly depends upon the source of energy the mining operations are drawing upon and the impact their energy use has on the power grid.

If the mining operations are drawing most of their electricity from fossil-fuel-powered grids, then the impact is excess carbon pollution for an intangible-yet-valuable item whose future and benefits to humanity are uncertain. On the other hand, if mining operations are powered mostly by sustainable energy, the environmental impact is lower.

Not all cryptocurrencies use energy-intensive mining for validation. Cryptocurrency and blockchain technology are ever-evolving, with some taking steps to reduce their environmental footprints.

Bitcoin mining operators have also purchased previously shut-down fossil fuel plants to power their operations.

 This causes new concerns for environmentalists and countries who are struggling to reduce their carbon footprints in the next few decades.

Cryptocurrencies Are a Scam

Cryptocurrencies have become an accepted means of exchange at many retailers and merchants. People are accepting them in personal transactions, and governments are working to find ways to regulate them. Most cryptocurrencies have no programming, code, or malicious artificial intent that works to take money from you.

However, people have created scams to try and trick you out of your cryptocurrency or money. For example, there have been many initial coin offerings—unregulated fundraising for new cryptocurrency ventures—that turned out to be scams. In other cryptocurrency scams, someone might try to get you to accept unverified transactions, or call you pretending to be government officials and ask you to pay your debts in cryptocurrency.

You can find information about cryptocurrency and other scams on the Federal Trade Commission's Consumer Information website.

While it's impossible to eliminate the chance that you will be the victim of a scam, knowledge, and awareness can help you reduce the chances of it happening to you.

Cryptocurrencies Are a Fad

At one time, computers, the internet, and email were considered interesting only to a small crowd of tech fans—they are now staples of modern personal and work life. It is tough to predict where cryptocurrencies will be in the next few decades; however, the technology they introduced and the products they inspired will likely continue to be developed and refined.

Decentralized finance applications are taking shape, gathering the interest of financial institutions and consumers. Governments are exploring ways to implement legally-recognized cryptocurrencies pegged to an asset that is more stable in price, and some businesses are investing heavily in Bitcoin and altcoins.

Tech giants are researching ways to fuse the real and digital worlds, using blockchain technology as a building block for this fusion with non-fungible tokens created for anything imaginable. Tokens can be created for any asset and value assigned to them; the virtual and real worlds are being directed onto a collision course, and cryptocurrency is likely to be involved.

Cryptos are only for seasoned investors 

This is entirely false. One of the main goals of developing the idea of a decentralized currency is to give ordinary people more power and democratize the financial system by getting rid of intermediaries like government agencies and financial organizations. Although from a technical standpoint, understanding blockchain and cryptocurrencies can be challenging, the core idea is relatively straightforward.

With a wide range of services, including cryptocurrency exchanges, brokers, and peer-to-peer networks, enabling simple trading and acquiring of digital currencies, cryptocurrencies have recently become more widespread than ever.

Cryptos is a bubble that’ll burst soon

Another prevalent misconception is that cryptocurrencies are just the latest fad or gimmick, which will pass. Because there will always be people in this world who desire a lot of control over their money and a mechanism to send money around the world quickly and cheaply, it seems unlikely that Bitcoin and other digital currencies will go away. The best thing about cryptocurrencies is that anyone may utilize them both short-term and long-term because they are self-contained and do not hang-on governments or the Federal Reserve to operate.

Final words

To conclude, since cryptocurrency is still in its infancy stage, many people are scared to take the first step toward understanding this technology. However, a little information and awareness on this topic can go a long way in helping newbie investors take that first step into the virtual currency space.

Before investing in cryptos, always understand the pros and cons of investing, learn the myths and facts, and be aware of the tax and other regulations implemented on it. At last, DYOR!