Bitcoin is one of the most exciting asset classes in the world. The trillion-dollar crypto ecosystem it has spawned has given birth to verticals like decentralized finance (DeFi), NFT, Metaverse, GameFi, etc. However, Bitcoin remains misunderstood and shrouded in mystery despite all its mainstream coverage. This has given rise to many misconceptions about its technology, use cases, and general usage. Today, let’s debunk some of the most prominent Bitcoin myths.
Bitcoin Myth #1: BTC is only used for illegal purposes
This is probably the biggest myth that did a lot of damage to Bitcoin in the early days. Bitcoin is a digital currency. It is the money of the internet age. So many digital and even real-world economies are running on the back of the Bitcoin protocol. For example, online businesses pay their employees with BTC and other cryptos. At the same time, several institutions like MicroStrategy and Tesla have bought bucketloads of it to diversify their portfolios and hedge against inflation.
However, does this mean that BTC isn’t used for illegal activities? Of course it is, but it is also used for many more legitimate activities – same with USD and CAD.
Bitcoin Myth #2: Bitcoin isn’t taxed
With more and more financial regulators educating themselves about Bitcoin, the crypto market has come under increased scrutiny. Bitcoin transactions are getting taxed in most countries. It is crucial that you read up on the implications of our crypto activity and how many taxable events you have triggered in the past. Crypto may have had a free ride thus far, but that narrative has changed, for the better, with increasing regulations.
Bitcoin Myth #3: BTC has no inherent value
Why does the dollar have value?
Is it backed by gold? Well, not really. Most currencies are not backed by gold. Most of them are actually backed by a more powerful currency like the US dollar. The dollar has value because the government gives it value by tying it to the country’s infrastructure. Plus, the people accept it as a means of value exchange.
Bitcoin’s value proposition is more tangible and closely tied in with its supply-demand mechanics. Unlike most modern currencies, BTC is hardcoded to be scarce. There will only ever be 21 million bitcoins. Of these, more than 90% have been mined already.
Along with this fixed upper limit, Bitcoin also goes through a ” halving process,” which halves the amount of BTC entering circulation by half every four years. This scarcity coupled with increasing demand theoretically gives BTC value as a rare asset.
Bitcoin Myth #4: It is easy to hack Bitcoin
This is probably one of the most persistently annoying Bitcoin myths. Yes, cryptocurrencies have a chequered past of being hacked multiple times, which has led to losses worth billions of dollars.
But why do these hacks happen? What exactly do the hackers exploit?
If you look back at the biggest hacks in Bitcoin’s history, for example, Mt. Gox, you would see that the attack happened because of inefficiencies within the exchange, not Bitcoin..
The underlying blockchain has never been hacked. The only way to do a hostile takeover of a blockchain is to launch a 51% attack or take over 51% of the network hashrate. If you successfully launch a 51% attack, you can rewrite all transactions and render the chain useless by killing transaction finality.
As per conservative estimates, it would take over $5 billion to launch a 51% attack on Bitcoin.
Bitcoin Myth #5: Bitcoin is bad for the environment
Alright, this is a tricky one.
As per Digiconomist, Bitcoin mining uses more every year than small-to-medium-sized countries. Currently, mining consumes more energy than the entire country of Thailand. It would take 400 million trees to offset mining’s carbon footprint in 2021.
So, why is this the case? The Bitcoin algorithm “proof-of-work” is inefficient by nature. This inefficiency is crucial for a decentralized network to achieve security. In fact, this inefficiency is one of the biggest reasons why it is so expensive to launch a 51% attack.
As Nick Szabo, the creator of Bitcoin’s precursor BitGold, puts it, “Prolific resource consumption and poor computational scalability unlock the security necessary for independent, seamlessly global, and automated integrity.”
However, mining has started to become more sustainable. As per New York-based fund Ark Investment Management, “Bitcoin is much more efficient than traditional banking and gold mining on a global scale.”
The Bitcoin Mining Council, consisting of the world’s largest mining pools and industry players like MicroStrategy chief Michael Saylor, are actively working to incorporate more sustainable mining methods. As per the Council, 60% of mining is currently green and sustainable.
Unfortunately, cryptos are a political hotbed and everyone crafts narratives that best suit their agenda. As such, when you hear criticisms about Bitcoin being “wasteful,” make sure that you note where that comment is coming from and whether they have some personal interest in dunking on cryptos.
Bitcoin remains one of the greatest inventions of the 21st century. Yet, the technical nature of the subject has raised the barrier to entry, which has unfortunately given rise to multiple misconceptions and myths. Aggressively debunking these myths will be crucial for the further adoption of cryptocurrencies.
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