Make no mistake: Cryptocurrencies are growing more and more in popularity. First bursting onto the scene in 2009 – thanks to a programmer (or programmers) named with the pseudonym Satoshi Nakamoto – Bitcoin was one of the earliest pioneers in cryptocurrencies. Since then, crypto has risen to be valuable to individuals, companies, markets, and so on.
Though with that said, the existence of cryptocurrencies has sparked many myths about them over the years. While some people may be able to decipher the truth about digital currency, many others aren’t too sure how and why it works, which can lead to, understandably, much confusion.
First, let’s dive into what cryptocurrencies are.
What Is Crypto?
Cryptocurrency is a virtual currency, or a medium of exchange, that uses cryptographic protocols to instil a safe and authentic environment for online transactions. But the most fascinating thing about this type of currency is that it thrives on advanced technology, including blockchain (which we’ll discuss further in this article).
However, despite the positives so far, the concept of crypto is still fairly new. As a result, with its infancy comes many misconceptions about it. Why? For the following reasons:
• People wonder if cryptocurrency can be trusted like a bank or not.
• Some people may find crypto strange and mysterious, that it may be linked to criminal activities.
• The technology is still new, and people might find it difficult to understand what the purpose of crypto is.
Now, while many of these concerns are understandable, that doesn’t mean that you should believe all the myths that are out there about crypto. While there are people who are still sceptical about these famous virtual currencies, for individuals looking to learn more about crypto, then research is essential.
With that said, here are 5 crypto myths and bitcoin myths to look out for, because chances are, they’re not true!
Let’s jump right in!
One: Crypto Can Easily Be Hacked
One of the major concerns that seem to centre around cryptocurrencies is if whether or not they’re vulnerable to hackers and other cyber-attacks. Some of the reasons why people believe this myth is because:
• There have been past reports on crypto being hacked on different occasions. For example, the cryptocurrency exchange Cryptopia in Christchurch was hacked, leading to 15% of the company’s digital currency stock being stolen.
• Cryptocurrencies are categorized as digital assets, meaning that they’re housed online, which is usually a hot spot for potential hackers.
However, the idea of cryptocurrencies being easily hackable is NOT true. It’s a misconception born out of past hacking attempts, and the fear of there being more to come. While it’s important for companies and individuals to be on the lookout for cyber-attacks, it’s still just as important to know that cryptocurrencies aren’t as hackable as one might think.
The truth is, cryptocurrencies are difficult to hack since they’re layered with protective underlying technology called blockchain. Blockchain’s encryption is responsible for defending crypto from potential hackings. Therefore, transactions made in crypto are secure in stored blocks of encrypted data.
Since the rise of mining cryptocurrencies, this myth has also risen.
Two: Crypto Can Be Harmful To The Environment
What is crypto mining? And is crypto bad for the environment?
It’s not gold mining! Also known as Bitcoin mining, crypto mining is when people mine and earn crypto without having to pay for it. When a Bitcoin miner is one of the first to solve complex hashing puzzles – or, essentially, completing “blocks” of verified transactions (which are then added to blockchains), they’re rewarded with crypto for doing so. In short, crypto mining is when transactions for various forms of crypto are verified and added – or “mined” – to the blockchain digital ledger.
As a result, many companies will invest a lot of money in specific equipment to help them increase their cryptocurrency mining power. The major downside, though, is it would take a lot of electricity and energy consumption to use that equipment, which has led to the assumption that cryptocurrencies are harmful to the environment since they require a lot of power to mine. This is especially relevant since each bitcoin transaction has to be verified using these hashing puzzles.
However, crypto doesn’t involve any other source of power other than electricity. All crypto mining takes are computer power and people power. If the mining occurs in a place where renewable energy is used, then the carbon footprint is only as large as the fossil fuel burnt. Comparatively, crypto is not as bad as mining gold, using less than 10 percent of the electricity consumption of traditional banking.
Three: Crypto Exchanges Are Tax-Free
Just because crypto is a unique digital asset to have on your person, doesn’t mean that the Inland Revenue Department (IRD) won’t want to hear about it. Crypto-based exchanges are still considered taxable, because when you, say, earn crypto, then you would have to pay income tax when you exchange it for fiat currency. You need to keep full records of your cryptoasset transactions for seven years. According to the IRD, a crypto asset is “treated as a form of property for tax purposes”. This means you’ll need to register and pay taxes (and get a tax return!) on the exchanges and earnings that you get from crypto.
Just because there is currently no central bank or law enforcement that is specifically involved with cryptoasset income, doesn’t mean that they don’t need to be taxed. Because you make fiat currency in realising your crypto returns, you need to be taxed on your taxable income.
Four: Crypto Can Be Counterfeited
Since there’s that old fact that regular (cold hard) cash can be counterfeited, now there’s the question of whether or not crypto counterfeited as well. This brings us back to the idea of crypto being hackable, if left unchecked.
However, you might be surprised to know that cryptocurrencies can’t be counterfeited. Why? Because each virtual coin has their own codes, which can’t be altered or forcibly replicated, as one would with physical currency. Since they operate with their own codes, cryptocurrencies have blockchain technology that make it impossible for anyone to record performed transactions, or record the order of which those transactions are being made.
Essentially, if anyone tried to duplicate virtual currencies, or create equal ones, the system will be quick to detect fraudulent transaction, and then kick out the incorrect transactions. Thus, crypto’s system makes it virtually hard for wannabe counterfeiters to cheat it.
Five: Crypto is Illegal
The most concerning myth is crypto’s legitimacy. Some people might come to believe that cryptocurrency is an illegal form of digital money used for criminal activity. While it’s true that people can use crypto to buy things like food and clothing, there’s still that myth of people using it to make illegal purchases. While some of that is true in some cases, it’s not true for all cases.
First, crypto isn’t the only type of currency used for illicit activity. For many years, cold hard cash has been used to buy illegal objects. While cryptocurrency is sometimes used in money laundering, criminals still primarily prefer to use actual fiat money. This is partly because blockchain technology means that whatever is on the blockchain can never be changed or removed. So if you know enough to track down a transaction, you can follow the path of the crypto exactly, and increase your chances of catching the crooks. You could never do that with legal tender!
Plus, the legitimacy of cryptocurrency depends on what country you live in. So, when researching crypto, be sure you know your country’s policies on it. If your country doesn’t allow it, then don’t risk it.
BONUS MYTH: Blockchain And Crypto Are The Same Thing
Finally, we’ll talk about blockchain and crypto. Are they really the same thing? Or, are they actually different from each other?
Many people speculate that since blockchain and crypto are always seen together in either conversation or learning sessions that they have to be the same thing, right? FALSE.
The truth is, blockchain and crypto aren’t as synonymous as people might think. As mentioned earlier, blockchain is there to protect crypto from potential hackings. Think of crypto as a computer, while blockchain is the anti-malware protecting from viruses. That means crypto and blockchain are separate entities, despite their combination – where one uses the other to properly function.
As you can see, many of the myths mentioned in this article can be deciphered, and the truth can be understood when done so. Now, while there are more myths that revolve around crypto that haven’t been discussed; however, this list serves as a testament of how easy myths can be generated around the topic. Therefore, it’s important to gain a clear understanding on such myth, and why they’re not real.
Ultimately, cryptocurrencies are still new, despite its slow mergence over the years. At this rate, crypto will continue to rise as currency of the future. But again, there has to be a clear understanding of crypto in order for everyone to embrace it as something legitimate.
So, as we review, we’ve unmasked 5 myths by exposing the truth, which goes as follows:
• Crypto isn’t as easy to hack as one might believe, as long as blockchain is there to stop it.
• Crypto doesn’t harm the environment tremendously, even though it takes a lot of computers and manpower.
• Crypto is not (and NEVER WILL BE) tax-free.
• It’s virtually impossible to make “counterfeit” crypto since their coding and blockchains won’t allow you to do so.
• Crypto is used for legitimate and illegitimate reasons.
And, let’s not forget the bonus myth of blockchain and crypto being the same thing – they’re on the same boat, but separate from each other.
Once you have a better understanding of crypto, then you can decide whether or not investing your time and money in crypto is right for you.
About the author:
Elizabeth Hines is a writer and editor at UK Writings. As a digital marketer, she helps various companies improve their marketing strategies and concepts. As a content writer, she writes articles about cryptocurrency, coding, and marketing
The above references an opinion and is for informational purposes only. Do not take this as personalised financial advice or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.