Bitcoin is not an easy subject to grasp. Truly understanding the world’s most renowned cryptocurrency requires at least a basic knowledge of technical subjects like computer science and cryptography. This, combined with the rising media obsessions with Bitcoin, have lead to several misconceptions that have served only to damage its reputation.
Here we unravel the rumours, and bring you closer to the truth about Bitcoin.
- Bitcoins are worthless because they aren’t backed up
It’s true that Bitcoin is not a fiat currency. That is to say, it is not backed by a government as a currency of a particular country. But just like fiat currency, Bitcoin is backed by several market factors. It can be invested and traded, and spent in exchange for real services and products. Supply and demand affects its value, as does one essential concept: Faith. It is the confidence (consensus) in a commodity that truly gives it value. Gold is only valuable because we agree that it is. The US dollar is also backed by nothing other than faith. Bitcoin has proven market value, backed up by pretty much the same principles as other currencies.
- Bitcoin is too volatile to be useful
It is true that Bitcoin has had a volatile history since the first blockchain was cracked in 2009. The value ha fluctuated immensely from fractions of a dollar, to all time highs of over $4000. The currency has begun to stabilize a lot since its early days, but here is the clever bit… the amount of Bitcoins available to mine decreases by 50% every 4 years, and is capped at a total of 21 million. Once all coins have been mined, the controlled supply should actually reduce the effects of inflation, and cause a deflation and stabilization.
- Bitcoin is a pyramid/Ponzi scheme
The idea that Bitcoin is a pyramid scheme comes from a misconception about its very nature. Bitcoin is a decentralized currency with no head organization. A pyramid scheme is created by a main authority that promises investors a return, with new investors paying for existing investors, and no one really benefiting in any real way. It’s true that Bitcoin networks become stronger and more resilient the more people are involved, but that’s where the similarities end. Bitcoin databases that show addresses and balances are managed using peer-to-peer networks of users.
- Bitcoin is unsafe and unsecure
Those who are new to the world of cryptocurrency can assume that Bitcoin is unsafe and unsecure, and news stories about stolen and missing Bitcoin have further perpetuated this notion. In reality, no one has even cracked the cryptographic foundations on which Bitcoin was built. That’s right! There have been problems with third-party companies, the biggest of which was the case of $400,000,000 disappearing from accounts of Bitcoin exchange company Mt Gox, but Bitcoin itself has never been cracked. It also grants a certain amount of anonymity, as well as privacy enhancing services for blockchains. Bitcoin owners should take care of their passwords for online wallets to ensure they do not lose them.
- Bitcoin can’t be used
As it stands, many Bitcoin owners are holding on to their currency as a digital commodity to be stored for value, but this does not mean the coin can’t be used. This was more true in the early stages, but since then businesses have spanned out around the coin, and popular high-street names have embraced the cryptocurrency. Companies like Amazon even offer a discount when using Bitcoin for purchases. Recently, cryptocurrency banking has become available, with company Bankera offering all of the usual services associated with fiat banking, from interest, to loans, to investment opportunities. Bitcoin is also being embraced as a method of cheap international transfers and remittances. Those who believe Bitcoin is useless simply do not see the benefits of a global cryptocurrency, and the industry that is quickly growing around it.