Cryptocurrencies have been around ever since the Bitcoin inception in 2009. Throughout all these years the crypto market had its ups and downs, yet managed to rise to new highs in a new cycle, having finished the old one. Because of the rise in value, crypto managed to attract more and more investors, who were either enthusiastic about the blockchain technology underneath or crazy gains obtained by people who invested their money into these digital assets.
Despite all of the progress in the adoption and growth in popularity of these crypto assets there remains quite a lot of confusion, not only around basic concepts, but also looking at crypto from the investment perspective. It could partly be attributed to the fact that crypto moves at an astonishing pace, as well as partly to its somewhat obscure nature, which makes it a little more difficult to understand.
Let’s dive into some of the biggest myths and misconceptions people tend to have about the crypto world. We’ll evaluate whether they’re based on anything solid, separate the fact from the fiction to help you decide if there is truth or falsehood to them.
#1 Myth: Cryptocurrencies Don’t Have Any Value
Numerous crypto bears have been critical of cryptocurrencies such as Bitcoin, claiming that they don’t have any value since they’re not backed by a commodity (gold, silver, etc). While that is true, it’s important to note that dollars aren’t backed by anything except faith in the US government, ever since Nixon closed the gold window in 1971. This of course doesn’t mean that dollars have been worthless for the past 50 years (even though they have been devaluing rather rapidly), as each one of us would probably pick up a 100 dollar bill, if it crossed our path. Why? Because value is a subjective concept!
Bitcoin has been backed by the same technology ever since it was introduced in 2009, but has been priced at only thousandths of a cent at the beginning, when only a handful of people recognised its value and managed to reach a price of $69,000 as more and more people joined the crowd. It portrays how market value of an object can change in accordance with a change in subjective value, perceived by a society as a whole.
#2 Myth: Crypto Is Unregulated
There is a widespread misconception that the crypto industry is entirely unregulated, which may have been true when crypto was still in its early stages and is completely off in 2022. While it is true that because crypto is still a new technology, the amount of regulation in this industry lags behind other traditional markets.
Recent regulatory advances, including the release of the Markets in Crypto-Assets (MiCA) provisional agreement in the EU and the release of the Framework for International Engagement on Digital Assets in the US, show that as crypto evolves, so does the regulatory framework around it. Many experts in the crypto field believe that the amount of crypto adoption can to some degree be dependent on the level and quality of regulation. Therefore we can expect more regulation in the upcoming future, hand in hand with further adoption, which will eventually get as extensive as the one in the conventional markets.
#3 Myth: Cryptocurrencies Are Only Used For Illegal Activities
Lots of people believe that cryptocurrencies are anonymous, while in reality they’re only pseudonymous. The difference between these two terms is that, for a crypto network to be pseudonymous, it needs to be impossible (or at least difficult) for any third party to connect a user’s publicly-known identity on the network (their wallet address) to their real-life identity. In essence, you can track all actions on a blockchain by a particular pseudonym (their transaction history, token balance, …), but don’t get to know (at least easily) who is the person behind a particular pseudonym. This means that it only takes one slip-up on the user’s part for their entire transaction history to become public. Contrarily, if crypto were anonymous a similar slip-up would only reveal a specific action, while everything else would remain hidden.
At the early stages of crypto, many people falsely believed that Bitcoin is anonymous and therefore can be useful as a medium of exchange for criminals. This was partly exaggerated by news stations in search of striking news that would attract readers. Many articles falsely claimed that Bitcoin was very popular among criminals because they could conduct secret transactions that banks, governments and law enforcement agencies could not trace. Law enforcement has become very sophisticated in the technology and techniques it uses to track illegal crypto transactions and can quite successfully associate digital identities with ones from real life.
Does that mean that no illegal transactions are conducted via blockchain technology? Probably not, but many experts agree that the percentage is probably minor in comparison to transactions settled in cash, which proves to be much more anonymous.
#4 Myth: Crypto Is A Bubble
Every time Bitcoin hits a new high, people start to label the crypto market as a bubble. While it is true that there can be lots of exuberant behavior around market peaks, when the euphoria reaches the highest level and lots of people rush into investing solely hoping for the high in the sky returns. During such periods the market can resemble a bubble, but let’s not forget what a bubble is. Bubbles are economic cycles characterized by unsustainable rises in market value.
The most famous bubble was probably the ‘Tulipmania’. The term refers to a period during the Dutch Golden Age when prices for some bulbs of the recently introduced and fashionable tulip reached unprecedentedly high levels. The prices were so extraordinary that the average price of a single flower exceeded not only the annual income of a skilled worker, but also cost more than some houses at the time. The bubble eventually collapsed in February 1637 and we haven’t witnessed such outrageous prices for tulips ever since.
If one compares the just outlined facts with the price movements of Bitcoin (the largest cryptocurrency by far), the difference stares in the reader’s face. While the prices of tulips never recovered after a crash, Bitcoin has gone through numerous price cycles over its history and has managed to recover each and every time. The price has managed to reach new highs every single time.
Every single asset’s price (along with the economy as a whole) moves through cycles. The newer and unfamiliar the asset is, the more obvious the cycles. Let’s draw parallels between crypto and technological stocks which were a completely new thing about two decades ago. Just like Bitcoin rose to $20,000, crashed, then rose to $69,000 and crashed again, technological stocks rose to unprecedented levels at the start of the century, crashed, rose even higher again and crashed again during the Great financial crisis, just to rise another time. Amazon stock nosedived from around $100 to just $5, only to become one of the most valuable companies in the world in the subsequent decades. Amazon stock’s value fell for over 95% during one of the crashes, yet has risen back and is now one one of the most valuable companies in the world.
#5 Myth: Crypto Isn’t Secure
Unfortunately many investors lost fortunes as a result of hacks or scams. While it is essential to point out that these things do happen, it is even more important to distinguish between losses that happened as a result of not taking proper precautions and losses that occurred as a consequence of actual hacks of protocols.
You have to keep in mind that a great majority of losses happen because people trust their funds to an unreliable third party that gets either hacked or insolvent and therefore leaves investors holding an empty bag. That is why it is of utmost importance to thoroughly analyze any third party before dealing with them so you can be sure that your funds will be safe.
For example, a while ago lots of crypto investors got stunned as Coinbase announced that in case the exchange goes bankrupt, the cryptocurrencies stored in their users’ accounts could be subject to bankruptcy proceedings, meaning they would lose all their holdings simply because the exchange that held them went bankrupt.
As the phrase ‘Not your keys, not your coins.’ suggests, your holdings are never really safe, unless you take control of their security. When you’re the one holding the private keys of your crypto wallet, no one can take them without your permission.