Bitcoin was the world’s first-ever digital currency that was invented in 2009. While cryptocurrency has been in existence for more than a decade now, it’s still in its nascent stage compared to the stock market, which has existed for two centuries at least. It’s therefore natural for the cryptocurrency markets to have misconceptions, myths, and questions being directed at their legitimacy.
Most frequently asked questions are in the realm of how to safely buy cryptocurrency, can you buy cryptocurrency with a credit card, and is it easy to convert cryptocurrency (fiat) to regular money? These questions are perfectly fair and clarify a lot of doubts for new investors. However, there are a lot of myths surrounding digital currency as well.
These commonplace myths stem from the fact that crypto is still relatively new and not many understand it completely. Thanks to the decentralized nature of the digital currency and no regulatory authority, people at large still believe that cryptocurrencies are used for illegal activities and are potential scams.
However, the growing popularity of crypto and the high adoption rate in recent times paint a completely different picture. If you are careful with your crypto investment, you’ll be able to get a higher payout than any other digital asset. But like every other asset, there are risks involved in crypto as well. Let’s take a look at the most common myths surrounding digital currency.
Digital Currencies Are Used for Illegal Activities
One of the most common and oldest misconceptions about cryptocurrency is that they are commonly used for illicit activities. While it’s true that cryptocurrency has been used by criminal individuals and organizations with nefarious intent, the same is true for any other currency or asset throughout history.
According to Crypto Crime Trends for 2022 by Chainalysis, the total number of crypto transactions related to illicit activities fell to 0.15% in 2021. Bear in mind that as cryptocurrency grows in popularity, governments around the globe are cracking down on digital currency use by organized crime and criminals.
Several countries have set up task forces to combat cryptocurrency use in illegal activities. To illustrate, the US has National Cryptocurrency Enforcement Team, which investigates criminal crypto uses.
Digital Currencies Don’t Have Value
Before we debunk this myth, know that value is a subjective concept – one man’s trash is another man’s treasure and all that jazz. The prime example of this is Bitcoin itself, which was valued at thousandths of a cent when it launched but touched a value of $65,000+ per Bitcoin in 2021. This radical growth in the value of Bitcoin proves that society’s perception of an asset plays an important role in establishing its value.
Another popular cryptocurrency, Ether, is valuable not because it has the same dollar value as Bitcoin; its value is much less. However, the coin is backed by the Ethereum blockchain ecosystem that’s fundamental for NFT, DeFi, and other technological advancements in the ownership of digital assets. It’s this future potential of the blockchain ecosystem backing it that gives Ether its value.
Cryptocurrencies Are Not Safe
Another most common misconception about cryptocurrencies is that they are not secure and safe. The building block of any cryptocurrency is blockchain. For the uninitiated, a blockchain is, by definition, a distributed database that is extremely hard to crack because of the cutting-edge encryption technology used. When new transactions are entered in blocks in the blockchain, previous transaction history is moved to a new block and encrypted.
This chain continues to build on previous blocks, and a large community of automated verifiers validates the information recorded in these transactions. The whole system of linked blocks, encryption, and consensus mechanism makes it almost impossible to steal crypto by hacking information in the blockchain.
While the encryption technology backing digital currency is airtight by itself, it’s the third-party crypto exchange and wallets that are the weak links. These platforms and wallets can be hacked easily, and therefore, it’s imperative to pick an exchange or wallet that has top-level encryption in place.
Crypto Will Soon Replace Conventional Currency
There are talks that digital currency is the currency of the future, and by 2050, it will replace conventional fiat money. For crypto to replace tangible money, the masses at large will have to adopt it over the money they have trusted and understood over the years.
It’s difficult but not impossible. Once the cryptocurrency is regulated with its value and purchasing power established, it might have a chance to replace fiat money. With more and more merchants accepting crypto in exchange for goods and services, a trend is beginning to emerge.
However, governments and authorities will not dismiss fiat currency so easily. This is because there’s an ages-old system in place with fiat currency at its core. It will take a long time for digital currency to replace conventional money.
These are the most common myths surrounding cryptocurrency and the logical explanation behind them. We are past the stage where digital currency was considered a hoax. With merchants and retailers accepting it as a payment and investors buying it for their portfolio is an indication that crypto is very much real and lucrative as well.