My top 10 Myths about cryptocurrencies
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Unless you’re sitting amongst a group of hardcore crypto investors, the chances are that whenever you discuss crypto trading you’ll be meet with a whole range of questions about how it works, what a blockchain is and ‘are you sure it’s not a scam?’.
This underlines the complex nature of this market, as well as the numerous misconceptions and myths that surround it.
In this edition of the #CryptoEssentials I’m going to discuss my top 10 crypto myths, while hopefully debunking these and making crypto trading easier as well.
1. Crypto is a Ponzi scheme
This may be the most frequently asked question by someone who doesn’t trade crypto, and fortunately the simple answer is no. in fact, financial and so called Ponzi schemes existed long before crypto became a thing, with the term ‘Ponzi’ scheme having originated from the activities of Italian swindler Charles Ponzi who conned investors out of millions during the 1920s.
However, a number of high profile ICO scams, coupled with some negative media reports, have managed to convince those that aren’t involved in the industry that it’s incredibly shady and underhanded.
This is really not the case, however, and it’s important to remember that this new economy has actually inspired a wealth of applications and an entire generation of innovative businesses.
In fact, it’s more likely that scammers will try to leverage crypto as a guise for the next Ponzi scheme, but this has nothing to do with the technology or the currencies themselves. Even then, such instances would be in a minority, although we’d always recommend researching any ICOs and token that you’re motivated to invest in.
2. Used for money laundering
Just like Ponzi schemes, money laundering has gone on for as long as anyone can remember. Whilst there will undoubtedly be some people trying to use cryptocurrencies as a means to do this, of course, exchanges are increasingly invested in the idea of regulating their markets and verifying the identity of their customers.
These efforts are underpinned by the Know Your Customer (KYC) initiative, which requires numerous proofs of identity to be submitted and approved before individuals are able to trade.
It’s also worth noting that cryptocurrencies actually account for a very small proportion of money laundering activity. According to Elliptic, less than 1% of reported cases involved Bitcoin transactions, highlighting the gap between perception and reality in the current marketplace.
3. Crypto transactions are all anonymous
This is a very common misconception, and one that has become central to the cryptocurrency myth.
With the exception of privacy tokens, which can be used to add additional layers of privacy to a transaction, all transactions are recorded on a transparent, public ledger (known widely as the blockchain). This allows anyone to trace a transaction to a particular wallet address, without referring to a central authority or body.
So, rather than being completely anonymous and shrouded in mystery, crypto transactions are actually well suited to public bodies that require complete transparency on all transactions.
4. Crypto is only used by criminals
Despite the innovative nature of cryptocurrencies, they remain vulnerable to the machinations of those who trade them.
This means that the unique features of Bitcoin and similar currencies can be used for both legitimate and illegal reasons, particularly if you live in a politically or socially unstable region in which crypto is a viable alternative to mainstream financial institutions.
So, just like the previous points concerning Ponzi schemes and money laundering above, there will always be an element of society that attempts to use a completely legitimate product or service for their own, illegal gains.
Unfortunately, high profile cases such as the Silk Road have helped tar huge swathes of the industry with the same brush, which is not only unfair but also fails to recognise the relationship that exists between advanced technology and individual users.
5. Because the Bitcoin price is volatile, it makes the blockchain unreliable
The price volatility of cryptocurrencies is often mistakenly tied to the credibility of the underlying blockchain technology.
However, this is not a fair association. After all, cryptocurrencies are just one type of application that uses blockchain technology, which has universal appeal and is used increasingly across a diverse range of marketplaces. So, while the crypto market may be considered as a relatively volatile entity, this has little relevance to the technology that underpins it.
In this respect, it’s clear that blockchain should be considered as an entirely separate entity to cryptocurrency, and one that will continue to disrupt and define a host of industries in the future.
6. Cryptocurrencies don’t really have a value as you can physically hold them
One of the biggest misconceptions that non-crypto traders have is that as cryptocurrencies don’t have a physical manifestation that can be held in your hand, they have no ‘real’ value.
However, cryptocurrencies work in a similar way to fiat currency as their prices and underlying values are essentially determined by supply and demand.
The only difference is that rather having notes and coins in your pocket, you have your crypto wallet address on the blockchain.
7. Cryptocurrencies are an easy way to make money
It is true that some investors have seen incredible profits through trading cryptocurrencies. However, those same investors have probably recorded hefty losses at some point as a result of price volatility.
So, whilst it’s possible to make huge profits from crypto trading, it certainly isn’t a get rich quick scheme.
As with all investments, you should only ever invest what you can afford to lose. That said, there are a few things that you can do to give yourself a better foundation of knowledge before entering the market, with our trading tips blog offering several handy insights.
8. Crypto is a ‘bubble’
It’s fairly easy to understand why people may ask this question, especially if you look at the huge peaks and troughs associated with some cryptocurrencies.
Whilst it’s likely that we will continue to see fluctuations within the crypto market thanks to price rises and subsequent corrections, it certainly isn’t accurate to define this as a bubble.
In fact, price fluctuations are evident among almost every type of financial asset and market, from stocks and commodities to fiat currencies.
Not only this, but the crypto market has already evolved and diversified considerably since the inception of Bitcoin in 2009, with the development of stablecoins one of many innovations that will introduce further growth and stability into the sector over time.
9. Regulation is the enemy of crypto institutions
Not only is this not true, but it is also entirely unrepresentative of the sentiment that actually exists in the market.
Regulators are not trying to stop the crypto party early or make it more difficult for investors to trade. Instead, they are applying regulatory measures to ensure that investors are protected and crypto companies behave and operate like the serious financial institutions they are.
The more crypto companies that proactively engage and work with regulators, the safer the whole industry will be going forward.
10. Crypto ‘won’t catch on’
Be honest; do you think that those who were only able to use cash to buy goods and services a decade or two ago would have believed that at some point in the future we’d be able to pay for things by tapping a piece of plastic on a small computer screen?
Of course not, but yet we now use contactless payments every single day. There is no doubt that there are people that wholeheartedly believe that cryptocurrencies are a fad and will never ‘catch on’, but this does a huge disservice to the nature of innovation and the growth path that crypto has embarked upon to date.
In truth, the adoption rate of crypto by consumers, retailers and even governments is already a great sign that this market is going to be around for quite a while. The fact that you can already buy houses or pay for professional services with crypto is also a clear sign that cryptocurrencies are very real and are here to stay.
If you enjoyed this article or found it useful, why not check out one of our other blogs below. As always, if you have any questions or comments, drop us a message via one of our social media accounts.
Coinage is here to make cryptocurrency investing easier, safer, stable and more transparent for seasoned traders and newcomers alike
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