In recent years, cryptocurrencies have become more and more popular. The crypto market is believed to be profitable, but it is nothing short of a rollercoaster ride. Indeed, many cryptocurrencies have already evaporated with the recent price crash. But the ingenious technology that powers cryptos will change the nature of money and finance.
With so much jargon and other unknown words in the crypto world, it can be very confusing for novice investors to understand the crypto world. In today’s column, we’re going to debunk some of the most common myths floating around in the crypto world.
Myth #1: Cryptocurrency Will Be Widely Used for Payments
Cryptocurrencies like Bitcoin and Ethereum were originally designed to make payments without the need for fiat currencies, credit cards, debit cards or anything “centralized”.
The white paper, written by Satoshi Nakomoto, a pseudonymous creator of Bitcoin, makes it clear that it aims to facilitate transactions between “two parties willing to transact directly with each other without the need for a trusted third party.”
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Although we see many restaurants around the world and even countries like El Salvador accept Bitcoin as a form of payment to buy basic necessities, Bitcoin or any other crypto currency can hardly be a standard form of payment. But why you might ask?
The simple reason is that facilitating crypto transactions involves a fee known as “transaction fee” which is much more expensive than current banking systems. Second, it is extremely slow, it can take longer than 10-15 minutes for a transaction to take place as every transaction has to be validated and depends on the number of crypto validators or “miners” on a blockchain. Some cryptos like Ethereum process transactions faster, but again, this can be quite expensive.
Third, cryptos are volatile, meaning they are subject to wild swings. So if you have 1 Bitcoin worth Rs 20 lakh today, you don’t need to get the same value a week later. It could probably be much less or much more, it all depends on the current market and price rates.
At the end of April, for example, the price of one Dogecoin was 20 cents. It tripled over the next two weeks and fell to half of that peak ten days later. It’s like a $10 bill could buy you a cup of coffee one day and a full meal at a fancy restaurant a few weeks later.
Myth 2: Blockchain and Bitcoin are the same things
A common view is that Blockchain and Bitcoin are the same two things. When someone talks about blockchain, they immediately relate to Bitcoin. However, Blockchain is the technology that is basically a distributed database that records the transactions that take place in it. This technology has several use cases, including cryptocurrencies.
What makes Blockchain technology powerful is that it is immutable, meaning it cannot be edited or changed. The mentioned cryptocurrencies are one of the use cases of Blockchain. These are algorithms that run on the blockchain and contain intrinsic value that can be exchanged for fiat. In addition, cryptocurrencies are cryptographically secured, which means that no one can change their value.
Myth 3: The use of cryptography is reserved for illegal or criminal activities
Cryptocurrencies are not only used for illegal activities. It has legitimate uses like trading, buying or selling, facilitating transactions not only related to money but also contract transactions. In simpler terms, the Ethereum blockchain has a so-called smart contract that enables any type of transaction on its network. For example, non-fungible tokens (NFTs) run on smart contracts. It is essentially an algorithmically designed contract that automatically executes when a specific condition is met. A good example is how NFTs empower exclusive owners through smart contracts. Users can put their name on the smart contract, which again can never be changed, which makes crypto special.
But the fact is that crypto-related crimes have increased. By 2021, cybercriminals will have laundered $8.6 billion in crypto, a 30% increase from 2020, according to crypto analytics firm Chainalysis. As a result, governments around the world are setting up task forces to specifically tackle crypto crime and advance legislation.
Myth 4: Crypto transactions are anonymous
When the word crypto is heard often, anonymity is what a novice user thinks of. While crypto provides anonymity, it is not something that cannot be traced when it comes to your information such as your name, address and contact details.
Every transaction made on Blockchain is recorded with the sender and receiver crypto wallet addresses. All transactions entering and leaving this wallet are recorded on the blockchain, which is public. However, central authorities have mandated KYC on exchanges so that your wallet address can eventually be traced. That is why crypto transactions are also referred to as pseudo-anonymous.
Myth 5: Cryptocurrencies will disappear
Last but not least, cryptocurrencies are often referred to as a “big bubble” that will eventually burst and cease to exist. It comes as Christine Lagarde, President of the European Central Bank recently called “nothing-based” cryptocurrencies.
But this is not the complete truth. Whether the crypto will fade or not is speculative, but it is important to understand that this is a technology and not just price-based coins it is compared to. It causes transformative changes in money and finance.
A particular cryptocurrency may disappear, but not the technology it runs on. However, the crypto industry continues to evolve with new things coming into the picture like the recent NFT craze and the metaverse, all powered by cryptocurrency.
It is interesting to see how mainstream companies have become interested in crypto and in some cases invested in crypto themselves. With sensible regulations, crypto can be a win-win situation for everyone.