During the existence of bitcoin and other cryptocurrencies, a large number of erroneous judgments have appeared about them, which continue to spread among people even now. This leads to cryptocurrency being treated negatively, as the vast majority of myths about digital currencies are aimed at discrediting them. In this article, we will look at the most popular of them and debunk them for good.
Bitcoin Can Be Hacked
Cryptocurrencies are created based on blockchain technology, which organizes a database consisting of a chain of blocks. Each successive block has information about previous blocks. Such a database is stored simultaneously on all computers of the system participants. This technology is based on the principle of decentralization, that is, the database is not in one place, and all the computers participating in the system, form a network. To affect the network in any way, it is necessary to get 51% of its hash rate. Only then will it be possible to make changes to the transactions and impose their acceptance on a minority.
Bitcoin's computing power is distributed all over the world, and to try to take over the network, a large amount of hardware has to be combined. Still, mining companies will not destroy their source of income. And even if someone decides to attack the system, it will at most lead to failures, which will be eliminated with emergency updates.
However, cryptocurrency exchanges and other digital money services are vulnerable to hacking.
Bitcoin Is Not Backed By Anything
Back in 1971, the U.S. authorities abandoned the Bretton Woods system (the gold standard), and the U.S. dollar lost its peg to gold. Since then, the U.S. currency has not been specifically backed but is directly dependent on the country's financial stability.
To understand what bitcoin is secured with and how its price is formed, it is necessary to consider the value and functionality that the cryptocurrency presents to its owner:
- Anonymity. No one monitors bitcoin transfers and has no right to influence (cancel or suspend) the transaction in any way;
- Low commissions. In the network of the main cryptocurrency, there is a fixed commission for transfers, which is set based on the load on the network. It means that the commission will be the same if you transfer $100 and $100k, as well as any other amount;
- Speed. Bitcoin transactions are usually instantaneous. Allowable delays range from a few minutes to one hour, depending on network load;
- Limitlessness. You can transfer bitcoins anywhere in the world. The main thing is that the recipient has a cryptocurrency wallet.
Thus, bitcoin allows making anonymous payments and money transfers of any amount, regardless of the location of the sender and the recipient of the cryptocurrency. This factor, combined with bitcoin's limited issuance (21 million coins), determines the demand that subsequently forms the cryptocurrency's price.
Bitcoin Is A Bubble
Back in 2010, the price of bitcoin was less than $1, but now it is worth more than $16,000. Other cryptocurrencies have also seen their prices go up by hundreds or thousands of times. This gave reason to compare the cryptocurrency market with a bubble that will surely burst, and investors will be left with nothing.
First of all, let's understand what a bubble is. It is an economic cycle of trading an asset characterized by an unsustainable growth of its market value. One of the first examples of such a bubble was the rise in the price of tulips in the Netherlands in the 17th century. At that time, their value soared tenfold, and never recovered after the collapse. There was also the famous dot-com bubble at the beginning of the century. Back then, the value of Internet companies soared and collapsed dramatically in a short period of time.
Bitcoin and other cryptocurrencies have been around for more than a decade. During that time, they have gone through several cycles in which their value rose and fell. However, after all, previous falls, bitcoin has renewed its price records. Along with it, the entire cryptocurrency market grew. As analysts explain, cryptocurrency fluctuations form a pattern typical of young markets. They expect assets to rise and fall with smaller fluctuations over time, and the time between these cycles will increase. That is, the cryptocurrency market will become more stable and predictable.
Buying Cryptocurrency Is Difficult
Many potential investors are deterred from buying crypto assets by their lack of experience. Since it is a new and technological tool, it may seem complicated. In fact, it is possible to invest through special exchanges, mobile applications, or other trading platforms. The registration procedure on them is usually no more complicated than, for example, creating an account on a social network or in an online store.
As a rule, the major exchangers ask to confirm the identity. To do this, it is necessary to upload a photo of the documents. This is a requirement of the world's regulators, which helps make exchanges more secure. However, those who value anonymity can also find exchanges where there are no such requirements.
The process of buying cryptocurrency itself is also simple. To do this, you can top up your account and use it to make purchases or pay with your card directly for each cryptocurrency purchase. In terms of complexity, this procedure can be compared to recharging a cell phone or buying goods.
One Needs A Lot Of Money To Buy Cryptocurrency
Most people learned about the existence of cryptocurrency when the price of bitcoin reached tens of thousands of dollars, which would seem to immediately cut off investors with a budget of a few hundred. In fact, all services allow you to buy a share of bitcoin or another cryptocurrency. The minimum amount for which you can buy a cryptocurrency may vary from site to site, but usually, it's only a few hundred dollars.
If you buy a bitcoin or other cryptocurrency, you will earn on its growth, as well as those who operate with tens of thousands of dollars. If an asset doubles in value, for example, then the investments of everyone who holds it will also double. The same will happen if the crypto-asset becomes cheaper.
Only Pros Can Make Money With Cryptocurrency
There is a widespread belief that buying cryptocurrency is similar to trading on the forex market. They say you have to buy it when it goes down in price, sell it when it goes up in price, and so on in a circle. And in order to do that one has to understand its trends, news, and reasons for daily price changes.
Of course, that's how traders make money. However, most crypto investors are not actively trading. They only buy bitcoin or other tokens and wait for them to rise in price. This strategy is used by those who see the potential of cryptocurrencies in the long term. The superiority of this strategy is ease. You don't need to check the exchange rate every day and monitor the news.
Cryptocurrency Guarantees Anonymity
This myth arose because cryptocurrency allows for transactions outside of the banking system. There are also anonymous wallets, for the creation of which it is not necessary to enter any personal data. At the same time, it should be taken into account that any transaction is recorded in the blockchain and saved forever. This means that if bitcoin has been in a wallet that is associated with criminal activity, no matter how much it is sent to other wallets, it cannot be "laundered".
Law enforcement can access the blockchain data and track down the person who made the transactions. However, because this procedure is complicated, it is used only in special cases.
Everyone Who Buys Cryptocurrency Will Get Rich
There are a lot of stories about people who bought bitcoin when it was worth a few hundred and woke up rich a few years later. Similar cases occur with other coins that have increased in price tens or hundreds of times. However, this does not mean that everyone who buys cryptocurrency will certainly get rich.
Keep in mind that these are risky assets that can both rise and fall in value. In addition, their volatility is higher than that of stocks, real estate, or fiat currencies. Therefore, experts advise keeping 5% to 10% of their savings in crypto-assets.
Cryptocurrency Is A Vogue, And It Will Go Away Soon
A few decades ago, computers and e-mail were of interest only to a very limited number of technology enthusiasts. When Steve Jobs said that soon computers would be in every home, he was surprised to be asked, "what are they there for?". The same thing is happening now with cryptocurrencies. So far, they have been used by a relatively limited number of people. But today's cryptocurrencies create ecosystems that, according to analysts, will continue to evolve, and there will be more and more practical applications for them.
There is growing interest in decentralized financial programs, which are safer, more reliable, and cheaper than the current systems. Tech giants are exploring ways to merge the real and digital worlds, using blockchain technology as a building block for this. States are thinking about creating their cryptocurrencies. So virtual assets, of course, will evolve and change but will remain with the technology on which they are based.
New tokens appear all the time and, quite possibly, some of them will increase in value hundreds of times. At the same time, some of them will depreciate or disappear altogether. Therefore, professionals advise diversifying your cryptocurrency portfolio: keep most of the funds in popular cryptocurrencies, such as bitcoin or Ethereum, and only part of the funds should be spent on new projects that seem promising. This will allow you to keep a balance between risk and reward.