There’s no better time than now to dispel some of the most persistent misconceptions and outright myths about Bitcoin, which is currently near record highs and the subject of major news stories almost every day.
The quick guide to exploding Bitcoin Myths
In short, this guide will at the very least help you win bar arguments with friends who think you’re nuts for buying Bitcoin. It might also give you more confidence moving forward with your own Bitcoin investment strategy.
Let’s get to the truth about Bitcoin and explode the top 3 Bitcoin myths.
Myth 1: Bitcoin is a get rich quick scheme
Some people buy Bitcoin to get rich quick, but this does not imply that Bitcoin is a fad or a bubble. Economic cycles known as bubbles are defined by market value increases that are unsustainable. When investors realize that an asset’s fundamental value is being overvalued, the bubble bursts. The 17th century Dutch “tulip mania” has been likened to what some perceive as Bitcoin bubble. Tulip prices went up 26-fold in 1637 because of speculators. Six months into the bubble, it burst, and it never recovered.
With each price cycle, Bitcoin has recovered and risen to new highs over the course of the last 12 years. As with any new technology, there will be ups and downs. For example, Amazon stock plummeted from around $100 to just $5 at the end of the dot.com era in the 1990s, only to become one of the world’s most valuable companies in the following decades.
In the minds of some major bitcoin investors, Bitcoin’s fluctuating prices are typical of new markets. Until it reaches a point of relative stability, they say, Bitcoin will surge and fall with smaller swings and longer periods between them until it stabilizes. In the end, it’s up to the test of time to tell.
Myth 2: Bitcoin isn’t used for anything
According to Bitcoin naysayers, the currency’s primary purpose is illegal activity rather than everyday commerce. There is no truth in either of those claims. For a long time, Bitcoin has been used to send money around the world without the need for a bank or payment processor. As a gold-like inflation hedge, major institutional investors are increasingly turning to it.
Bitcoin has earned the moniker “digital gold” due to its rising popularity as an inflation-resistant store of value. In order to better manage their assets, a growing number of major funds and publicly traded companies (Tesla, Square, MicroStrategy) have purchased millions, if not billions, of dollars in Bitcoin.
In the same way that gold is running low, so is bitcoin (there will never be more than 21 million Bitcoin). Inevitably, gold is large, heavy, and difficult to handle. As with email, Bitcoin can be sent electronically in the same manner as that.
When Bitcoin was first introduced, it was widely derided as a currency for the dark web. When the first major dark-web market was shut down, the price of Bitcoin shot through the roof — and kept on rising.
Like any other form of currency, some of it will be misused. Nevertheless, the amount of illegal Bitcoin use is negligible in comparison to the value of US dollars. Bitcoin transaction volume accounted for 2.1 percent of criminal activity in 2019, according to a recent report.
Due to the open nature of the Bitcoin blockchain, authorities have an easier time tracking criminal activity than they would in a more closed system.
Myth 3: Bitcoin is only valuable because it is valuable
Bitcoin, like the US dollar and nearly every other modern fiat currency, is not backed by a tangible asset like gold. Bitcoin’s scarcity makes it resistant to inflation because it is programmed to be so.
When governments print large quantities of paper (fiat) money they dilute the existing supply, leading to inflation.
No more than 21 million Bitcoins will ever be produced.
Because of its scarcity, it has a high market value.
The supply of Bitcoin is capped, and the amount of new Bitcoin mined is decreasing over time. Block rewards paid to network miners are halved every four years in an event known as, wait for it, a “halving.”
That has kept the price of Bitcoin steadily rising over time—from less than a penny at its beginning to more than $68,000 on November 8th of this year (2021), because of scarcity’s basic economic principle—by ensuring that the supply is always decreasing.
A process known as mining contributes to the value of Bitcoins by requiring computers to do work on the network. Every transaction is validated and protected by a massive amount of computing power from computers around the world (in exchange for new Bitcoin).
There are many more myths surrounding Bitcoin but we just wanted to touch on our top 3 in this post. Do you have some thoughts about what people get wrong about Bitcoin? How would you explain Bitcoin to someone who had never heard of it? Or how would you defend Bitcoin against those who want to tear it down? Leave a comment below and watch this space for more.
If you enjoyed this article, you might also like: How to Buy Bitcoin: A Quick Guide
Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.