Cryptocurrencies have become a hot topic for discussion when it comes to investments and asset building. But all of this has brought countless rumors and myths into existence that manipulate people’s perspectives regarding cryptocurrencies.
Knowing the truth is important if you want to make informed decisions involving crypto-assets and monetary investments. Here are some myths about cryptocurrencies like Bitcoin and Ethereum that aren’t factual at all.
1. Cryptocurrencies Aren’t Secure
Many people question the security and safety of crypto transactions, which is acceptable since there are no organizations or authorities to reach out to in case of fraud. But the truth is, cryptocurrency transactions are more secure than fiat currency records.
In centralized systems, organizations like banks store transaction records in one common ledger. If an attacker breaches the central network, they can tamper with every transaction. However, in the case of cryptocurrencies like bitcoin, the records are stored in the form of blocks in a central ledger known as a blockchain.
Hacking a blockchain is close to impossible since the blocks are immutable, meaning no one can modify a block after its creation. Also, the records are publicly available to anyone who wants to become a part of the network.
The reports of various crypto hacks might counter this statement, though. However, you should know that those incidents can be traced back to vulnerabilities found in cryptocurrency exchange websites, not the cryptocurrency itself.
2. Cryptocurrencies Are Illegal
While many argue about this myth, people need to know that the intent behind transactions doesn’t make a currency illegal. Criminals can also use paper currencies to carry out illegal activities.
The anonymity behind blockchain transactions contributes a lot to this myth. Since crypto transactions do not have any “finger information” associated with a specific person, wrongdoers get attracted to this digital currency more and more.
But it doesn’t mean that no one can trace them back using the transaction data. Blockchain transactions do not contain specific information, but they include the user’s wallet address, which can be further linked to a real-world identity.
3. Crypto-Assets Are Invaluable
For a long time, governments worldwide have been discussing income tax rules for digital assets like cryptocurrencies. This is proof that even the governments think the profit associated with cryptocurrency investments is real enough to be taxable.
Before the introduction of fiat money, representative currencies were the norm. These currencies were directly associated with physical commodities such as gold and silver. Like representative money, cryptocurrencies are also backed up by the cost of producing new units.
Take bitcoin, for example. Bitcoin mining is a process responsible for the creation of new bitcoins. It requires a great deal of energy to mine bitcoins since miners need to run their systems 24/7. As new miners join the network, the total energy consumption increases, and in turn, the price of bitcoin rises (but can also fall!).
The growing monetary value of cryptocurrencies is enough to debunk this myth.
4. Cryptocurrencies Will Make You Rich Quickly
You may have seen advertisements and fake finance “gurus” on the internet who advertise their products by providing a “get-rich-quick” scheme to the common people.
People tend to believe such phonies without considering the risks associated with cryptocurrencies. As you won’t trust a random stranger with your hard-earned cash, don’t let someone handle your digital assets for you when it comes to investing, unless they’re a professional, of course.
Also, cryptocurrencies are really volatile. The value of one bitcoin at the time of writing is around $33,792. Take a look at the price chart for the last 24 hours.
The lowest value for this period is $31,633, and the highest value, $32,756. This is enough to demonstrate that if you’re looking for short-term investments in cryptocurrencies, there are high chances that you might have to face a loss.
5. Cryptocurrencies Are a Scam
Scams and frauds revolving around cryptocurrencies are fast-paced. But that doesn’t mean that cryptocurrency is a “scam.” It is important that you familiarize yourself with the technology behind cryptocurrencies and how they work before investing.
As mentioned before, cryptocurrencies are more volatile than any other investment option. But if you’ve given enough thought and have analyzed the implications thoroughly, you’ll be able to maximize your profits while experiencing minimum loss.
On the contrary, someone who has not invested their time and effort in the research will face the unexpected crests and troughs of the price chart.
6. Cryptocurrencies Will Replace Fiat Currencies
Many people think cryptocurrencies are not secure, and only hackers use them for illicit purposes, while others believe that cryptocurrencies are stable enough to replace paper currencies like the dollar.
A few months back, Tesla CEO Elon Musk tweeted that people can now buy a Tesla car using bitcoins.
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You can now buy a Tesla with Bitcoin
— Elon Musk (@elonmusk) March 24, 2021
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Although this is a clear indication of people’s acceptance of cryptocurrencies for serious transactions, bitcoin replacing fiat currencies is still a far-fetched dream for crypto enthusiasts.
7. Cryptocurrencies Are Bad for the Environment
The effects of crypto mining on the environment are an incendiary topic.
While many argue that cryptocurrencies like bitcoin don’t negatively affect the environment, most industries and organizations use vast quantities of electricity for their work, leading to the claim that crypto mining consumes more energy than other financial processes (or even entire countries).
Some cryptocurrencies are self-sufficient, meaning they don’t rely on any physical commodity like gold for their generation and valuation. However, because of how bitcoin and other cryptocurrencies work, one day, it’ll become really hard for users to generate new units, which would eventually decrease the amount of energy used to mine the cryptocurrency.
Also, several environmental-friendly bitcoin alternatives use modified forms of the traditional Proof of Work (PoW) mechanism, known as the Proof of Stake (PoS) consensus mechanism.
Should You Invest in Cryptocurrencies?
In today’s world, where everything is happening digitally, cryptocurrencies are definitely a step forward in the journey. Unfortunately, that’s also why many people have a hard time understanding why cryptocurrencies need to be encouraged.
Anyone who is well aware of how cryptocurrencies and mining works can start investing in crypto assets. But first, determine your risk appetite while keeping in mind the risks involved. You’re also faced with choosing whether you want to mine for cryptocurrencies yourself or buy them using cryptocurrency exchange platforms.