In the last few years, cryptocurrencies have grown in popularity. The crypto market is believed to be profitable but is no less than a roller-coaster ride. Indeed, many cryptocurrencies have already evaporated with the recent crash in prices. But the ingenious technology underpinning cryptos will transform the nature of money and finance.
With so much jargon and other unfamiliar words in the world of crypto, it can be very confusing for newbie investors to understand the crypto-sphere. In today’s column, we’ll be busting the most common myths circulating in the crypto-world.
Myth No 1: Cryptocurrency will be widely used for payments
Cryptocurrencies such as Bitcoin and Ethereum were originally designed for making payments without the need for fiat currencies, credit cards, debit cards or anything that is ‘centralised’.
The white paper, written by Satoshi Nakomoto, a pseudonymous Bitcoin creator, clearly states that it aims to facilitate transactions between “any two willing parties to transact directly with each other without the need for a trusted third party”.
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While we see many restaurants globally and even countries like El Salvador accepting Bitcoin as a mode of payment for buying daily essentials, Bitcoin or any other crypto cannot practically be a default mode of payment. But, you may ask why?
The simple reason is that facilitating transactions on crypto comes with a cost known as a ‘transaction fee’ which is way more expensive than the current banking systems. Secondly, It is excessively slow, it could take more than 10 to 15 minutes for one transaction to occur, this is because every transaction has to be validated and is subjected to the number of crypto validators or ‘miners’ on a blockchain. Some cryptos like Ethereum process transactions faster, but again it can be quite expensive.
Thirdly, cryptos are volatile, meaning they are subjected to wild swings. So, if you have 1 Bitcoin worth say Rs 20 lakh today, it is not necessary that you would get the same value for it a week later. It could probably be much less or way more—all depending on the current market and price rates.
For instance, in late April, the price of a Dogecoin was 20 cents. It tripled in the next two weeks and then fell to half that peak value ten days later. It is as though a $10 bill could buy you just a cup of coffee one day and a lavish meal at a fancy restaurant just a few weeks later.
Myth 2: Blockchain and Bitcoin are the same things
A very common notion is that Blockchain and Bitcoin are the same two things. Whenever someone talks about blockchain, it is immediately linked with Bitcoin. However, Blockchain is the technology that is essentially a distributed database recording transactions that occur on it. This technology has several user cases, one of which is cryptocurrencies.
What makes Blockchain technology powerful is that it is immutable, meaning it cannot be edited or modified. Cryptocurrencies as mentioned are one of the use-cases of Blockchain. These are algorithms that run on the blockchain and hold some intrinsic value that can be exchanged for fiat. Further, cryptocurrencies are secured with cryptography which makes it impossible for anyone to change their value of it.
Myth 3: The use of crypto is only for illegal or criminal activities
Cryptocurrencies are not only used for illegal activities. It has some legit uses such as trading—buying or selling, facilitating transactions not only money-related but contractual transactions as well. In simpler words, the Ethereum blockchain has something called a smart contract that makes every type of transaction possible on its network. For instance, non-fungible tokens (NFTs) operate on smart contracts. It is essentially an algorithmically designed contract that runs automatically when a specific condition is met. A good example would be how NFTs give the right to exclusive owners via smart contracts. Users can mention their name on the smart contract, which again can never be changed, this is what makes crypto special.
But the fact is that crypto-related crimes have increased. In 2021, cybercriminals laundered $8.6 billion in crypto, up by 30 per cent from 2020, according to crypto analytics firm Chainalysis. As a result, governments globally are putting together task forces to deal specifically with the crypto crime and pushing legislation forward.
Myth 4: Crypto transactions are anonymous
When the word crypto is often heard, anonymity is what comes to a newbie user’s mind. While crypto offers anonymity, in terms of your details such as your name, address, and contact information, this is not something that cannot be tracked down.
Any transaction made on Blockchain is recorded with the sender’s and receivers’ crypto-wallet addresses. All the transactions coming and going through from this wallet, are recorded on the blockchain, which is of public view. However, central authorities have made KYC mandatory with exchanges so eventually, your wallet address will be tracked down. Hence crypto transactions are also called pseudo-anonymous.
Myth 5: Cryptocurrencies will fade away
Last but not the least, cryptocurrencies are often called a ‘big bubble’ which will eventually burst, and cease to exist. This comes as European Central Bank President Christine Lagarde recently called cryptocurrencies “based on nothing”.
But this is not the complete truth. It is speculative to say whether crypto will fade or not but it is important to understand that it is a technology not just some price based coins that it is being compared to. It is triggering transformative changes to money and finance.
A particular crypto coin might fade away but not the technology that it works on. However, the crypto-industry is still evolving with newer things coming into the picture like the recent craze about NFTs and metaverse—all fueled by cryptocurrency.
It is interesting to see how mainstream companies have taken interest in crypto, and in some cases, themselves invested in crypto. With sensible regulations, crypto can be a win-win for everyone.