Cryptocurrency is one of the most well-known components of web3. Technology is seen as the future of finance, bringing value and utility.
As a new wave, crypto has its share of misconceptions, often more widespread than facts. Along with its rise, the technology has had a myriad of myths and rumors, mainly based on users’ misunderstanding of how it works. With its multitude of use cases ranging from being used as a carrier of stored value to a form of investment, it is important that users fully understand the fundamentals of how crypto works. Fortunately, with just a few clicks, it’s easy to move beyond clickbait and separate fact from fiction about this exciting new technology.
1 Crypto is not secure because it cannot be found
One of the key features of cryptography is pseudo-anonymity. Bills are converted into online addresses or “wallets” made up of a unique combination of numbers and letters. The beauty of this feature is that it makes transactions transparent. Crypto transactions are naturally visible through a so-called ledger. Public ledgers effectively record all transactions, making them traceable. Any user can track or view transfers through blockchain scanners, and they can even track where their coin goes after being used for online transactions.
This level of transparency is even more apparent with crypto exchanges that are needed to collect information that can then be linked to digital wallets. Having this level of transparency discourages any unauthorized use of crypto on these platforms and allows for more security measures to be taken to protect users and make transactions more secure than ever.
Companies and groups such as Chainanalysis also use crypto transparency to detect illegal activities. Data collected through these methods is provided to law enforcement agencies and has led to the arrest of key perpetrators and even the recovery of lost or stolen funds, such as the recent Curve incident where global players such as Binance helped recover 83% of stolen funds. to get.
2. It’s not good for the environment
A common argument against cryptography is that it is harmful to the environment. Since it is a digital currency, the cryptography is produced by a process called “mining”. Computing power is used to solve cryptographic equations, yielding “rewards” in the form of cryptographic tokens. The amount of computing power is usually called very high, but recent developments in the industry are making the technology much greener.
Major tokens like Ethereum (ETH) are transitioning to the “proof-of-stake” protocol which consumes much less power than the traditional “proof-of-work” method. Proof of stake allows users to stake their tokens to verify transactions instead of the “proof of work” method that uses computing power directly. For those interested in the Ethereum merger, you should also do your own research into what the “triple halving” event refers to.
Green and sustainable crypto is also on the rise, such as Cardano (ADA). The founders of the crypto network launched the Cardano Forest program, planting trees with the goal of becoming a climate-positive blockchain. The program has already planted 1 million trees and continues to this day. There are also other chains that use an established proof-of-authority (POSA) consensus protocol that aims to minimize the trade-off between decentralization, security, and scalability. The BNB chain has completed more than 3 billion transactions since its inception and consumes less than 1% of the energy used by some other proof-of-work protocols.
3. Crypto has no real use
Utility has been central to cryptography since the beginning. Considered to be the first cryptocurrency, Bitcoin (BTC) was created to allow internet users to transact without any restrictions, if any, present in traditional financial institutions.
Companies such as Bitpay offer services that allow merchants to accept Bitcoin as a means of payment. WordPress, a popular website hosting company, also allows cryptocurrency payments for various services.
As a peer-to-peer form of digital currency, crypto users can also enjoy foreign transactions with less or no worries about fees or exchange rates. Crypto transactions such as wire transfers and remittances are more direct between users. It is not limited by factors such as bank closing times or sometimes sky-high transfer costs from money couriers.
Countries around the world are also taking steps to provide a regulatory framework for crypto that will increase its utility and allow more tokens to be used as a more efficient means of exchanging value.
4. It’s only used for get-rich-quick schemes
The value of tokens can change quickly depending on many factors, and this is partly due to the low liquidity on exchanges offering tokens with a smaller market capitalization. Rather than focusing on the short-term gains of investing in volatile tokens, investors should do their own research and understand the utility and tokenomics behind the tokens issued.
The value of the token is determined by the utility and strength of the utility, which is often described in the white paper that provides additional information about the project’s mission, the team behind it, the governance principles, utility and economic benefits behind it. use of tokens. and how tokens are allocated. Careful review of white papers allows users to quickly spot red flags containing a disproportionate number of tokens allocated to advisors/founding team with a very short vesting period.
Crypto prices are also often correlated with the general macroeconomic conditions and the amount of liquidity in the money markets, while the other fundamental driver would be the technology behind the coins and the actual use cases… Inflation and the ongoing global conflict prove that the currency is not completely independent of external factors. However, it can provide an economic cushion through added liquidity and usability.
5. It cannot be regulated, making it a huge risk
Due to its pseudonymous functions and decentralization, many are led to believe that cryptocurrency can never be regulated. This belief is starting to change thanks to the efforts of exchanges like Binance. We are starting to see extensive cryptography regulatory frameworks announced in the EU and countries like France, Italy and Spain have started accepting registrations for companies looking to conduct exchanges related to virtual assets. Canada has also included cryptocurrency in its tax laws, while Switzerland has started using crypto as legal tender.
The regulation will build trust among users and in turn boost the mass adoption of crypto. Regulation will allow for better integration with traditional financial institutions, making this new asset class more accessible and giving regulators greater visibility and security for users.
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