10 myths about cryptocurrency

10 Myths About Cryptocurrency  

Cryptocurrency is one of the most discussed topics in finance, technology, and investing. However, despite the skyrocketing popularity of digital currencies, many myths prevent people from fully understanding how cryptocurrencies work and how to interact with them. These misconceptions can cause mistakes and wrong decisions in both beginners and experienced users. In this article, we will debunk ten popular myths about cryptocurrency and tell you how things are.

“Cryptocurrency Is a Bubble About to Burst”  

The myth that “cryptocurrency is a bubble” often draws comparisons to the dot-com bubble of the late 1990s and early 2000s. During that time, intense speculation on internet companies caused unsustainable valuations, leading to a market crash. However, this period also gave rise to transformative companies like Amazon, Google, and eBay, which redefined industries and drove technological progress. Similarly, while some cryptocurrencies may fail or lack practical value, others, built on strong technology and real-world use cases, have the potential to become integral to the future of finance and various other industries.

“Cryptocurrency Is a Pyramid Scheme”   

A pyramid scheme promises a guaranteed profit. Cryptocurrency does not make any promises: its price is formed solely by the market. Yes, it is high-risk, but it is a fair market where everything depends on supply and demand.

Many cryptocurrency projects aim to solve real problems, such as facilitating international transfers, creating decentralized financial services (DeFi), ensuring transparency, protecting data using smart contracts, and developing Web3 ecosystems. These technologies offer new opportunities that go far beyond market speculation.

“Cryptocurrency Is the Choice of Criminals”   

The myth that “cryptocurrency is the choice of criminals” is based on a biased perception and ignores that this thesis can be applied to almost any instrument or technology. Fiat currencies, for example, remain the primary means of payment in the criminal world, but that doesn't make them criminal in and of themselves. Drugs created to save lives are often used to manufacture drugs illicitly. Vehicles designed for transportation can serve to carry contraband. Similarly, cryptocurrencies are simply tools that, like other technologies, can be used for good or evil. However, the transparency of the blockchain on which cryptocurrencies are based makes them far less convenient for criminals than anonymous cash. According to Chainalysis, less than 1% of all cryptocurrency transactions are linked to crime.

Cryptocrimes in 2023: key data from Chainalysis. Source: chainalysis.com/

Ross Ulbricht, the creator of the Silk Road platform, received a life sentence for organizing drug trafficking, money laundering, and other cryptocurrency crimes. This case shows that cryptocurrency crimes do not go unpunished, and the transparency of the blockchain often helps law enforcement in their investigations.

Ross Ulbricht is serving his sentence in a correctional facility. Source: reddit.com

 “Cryptocurrency Transactions Are Untraceable”   

As you have already realized, criminals use bitcoin and other coins for their own activities. At first glance, cryptocurrency wallets are completely anonymous. However, most blockchains, including Bitcoin and Ethereum, are public. This means that all transactions are visible and can be analyzed.

Authorities and companies like Elliptic or Chainalysis use advanced analytics to identify suspicious transactions. If you break the law, your cryptocurrency anonymity may be an illusion.

Etherscan is an Ethereum blockchain explorer for tracking transactions, wallet balances, smart contracts, and network health. Source: etherscan.io  

“Investing in Cryptocurrency Is Complicated and Expensive”   

It used to be that you almost had to be a programmer to buy cryptocurrency. But today, things have become much simpler. For example, the cryptocurrency exchange WhiteBIT offers an intuitive interface where anyone, regardless of their level of knowledge, can make a deposit and buy crypto in two clicks.

That being said, it is not necessary to buy a whole coin. For example, you can buy bitcoin partially — from 0.00000001 BTC. Even small investments are available to almost everyone, and training courses and articles will help to understand the nuances.

“Cryptocurrency Is Easily Hackable”   

Sometimes you hear stories about exchanges or wallets being hacked and users losing their savings. More often than not, however, this is not a technology problem but a human error. Criminals use social engineering, or in simple words, entice a person to give out their seed phrase or exchange password. 

If you prefer to hold cryptocurrency on exchanges, choose the most reliable and transparent platforms with a proven reputation. For additional protection, it is recommended to use hardware wallets that store your keys offline. Buy such devices only from official manufacturers or authorized stores.

Original Trezor One holographic seal (above) in contrast with fake holographic seal (below). Source: blog.trezor.io/

“Cryptocurrencies Are Not Regulated in Any Way”   

Although cryptocurrency emerged as a decentralized technology, authorities quickly realized its potential and began to develop regulations. Today, most exchanges operate within the laws of their countries, complying with KYC (customer identification) and AML (anti-money laundering) regulations.

Regulation makes the market safer for users and opens the door for the mass adoption of cryptocurrencies.

“Mining Is Destroying Nature”   

Cryptocurrency mining does consume a lot of energy, especially in regions with coal-fired power plants. However, more and more companies are utilizing renewable sources such as solar and wind power. For example, in Iceland, mining farms are utilizing geothermal energy, reducing the impact on nature. The environmental future of mining depends on technology and regulation. 

For example, Irish farmer Tom Campbell is innovatively turning livestock waste into energy through anaerobic digestion. The methane produced is used to generate electricity and the excess energy is used to mine bitcoin. This method can generate up to 700 kW of electricity, enough to power 12,000 homes, demonstrating the potential of eco-friendly mining.

Tom Campbell Farm. Source: youtube.com/user/cointelegraph

“Cryptocurrency Is Not Taxed”   

Although government authorities do not directly control cryptocurrencies, this does not mean they are completely exempt from taxation. In most countries, tax laws apply to cryptocurrency transactions because they are considered property transactions.

Usually, the profit made from trading cryptocurrency, i.e., the difference between the sale proceeds and the purchase costs, is subject to taxation. It is important to note that taxes are accrued precisely when crypto is sold and real money is received for it. Examples of such transactions are mining and staking — profits from these processes are also taxable if realized in sales. While specific taxation rules may vary from country to country, the general rule remains the same — taxes are levied on profits.

“All Cryptocurrencies Are the Same”   

The myth that all cryptocurrencies are the same is still prevalent among people, especially those who are new to the field. In fact, cryptocurrencies vary considerably in their features and functionality. Just as in the conventional financial system, there are different national currencies with unique features; in the world of digital currencies, there are many types, each with its own characteristics. 

For example, transaction speed, security, consensus algorithm, and degree of decentralization can vary greatly from one cryptocurrency to another. Some currencies, such as Bitcoin, are known for their high volatility and long transaction confirmation times, while others, such as   

Arbitrum, can process transactions faster and cheaper. You should also consider parameters such as market capitalization and demand, which also affect the stability and attractiveness of a cryptocurrency.

Cryptocurrency is neither a panacea nor an absolute evil. It is an innovative technology that is changing the financial and technological world. Instead of believing myths, it is worth studying the real workings of cryptocurrencies and blockchain. This is the only way to understand how they can be useful for you.