Guest post from Ravinder Sahu:
If you clicked on this article, you probably already know that cryptocurrency is a digital currency that operates outside the centralized banking system, using encryption techniques to regulate its transfer and production. However, because crypto is still a relatively new kind of currency, you might have some notions about it that aren’t exactly true. You want to become aware of these, as there’s one absolute about cryptocurrency—it’s an unstoppable trend. We examine some of the untruths below so you can avoid pitfalls if and when you think about investing. Read on for five myths about cryptocurrency you need to know to be a savvy crypto investor.
1. All Transactions Are Anonymous
When Bitcoin took the world by storm, the big thing that appealed to many investors was the idea of privacy. A lot of people had been negatively affected by recent data breaches so the idea of anonymous transactions was extremely appealing. However, as this Washington Post article notes, “The vast majority of Bitcoin users don’t get significantly more privacy than they would with traditional bank transfers, and they probably get much less than they would by paying with cash. That’s because it’s possible to link a user’s pseudonyms together by studying patterns in the blockchain.” It’s also a public ledger that keeps track of how much was sent from one address to another. Tech-savvy users are still able to hide their identities with the use of coin-mixing protocols. This means users swap coins in order to jumble the ownership patterns, but this is difficult to manage so it isn’t done very often.
2. Blockchain and Bitcoin are the Same Thing
Blockchain is the root technology for Bitcoin. Since Bitcoin is more popular than blockchain, people get confused and often assume the two are the same. Blockchain is what enables peer-to-peer transactions to get recorded on a ledger that’s distributed throughout the network. Alternatively, Bitcoin is the cryptocurrency that can be directly exchanged between two people without having to pass through a third party like the centralized banking system.
3. Cryptocurrencies Are Designed For Criminal Use
While decentralization and a touch more anonymity are attractive features for criminals, they’re also just as appealing to law-abiding citizens who have been economically burned by mainstream banking. It’s also an excellent option in times of political turmoil. If your country looks to be on the verge of destabilizing, it could very well be the best place to keep your money.
And while its exchanges might have seemed like the wild west at first, they are already regulated through specific laws in certain states. And all mainstream bitcoin exchanges have to comply with “know your customer” laws in order to prevent money laundering. In addition, The IRS sees Bitcoin as taxable property, and has been cracking down on initial coin offerings.
4. Getting Involved in Cryptocurrency is Not Safe
Because this is a relatively new kind of currency, skepticism of its safety is natural. And when you’re considering where to buy it, you might be asking yourself, “How safe is coinbase?” When you consider that cryptocurrency prevents counterfeiting and transactions pass immediately from one hand to another, this is about as safe as currencies can get.
5. The Supply for Bitcoin is Finite
True investors have loved the thought that Bitcoin’s supply is limited, as this drives up the value. But this hasn’t exactly been the case. In fact, the aforementioned Washington Post article notes, “The currency’s original design calls for the 21 million units to be slowly created over the next 100 years or so. But the protocol can be amended by community consensus—a majority of participants in the Bitcoin network—as has already occurred several times, such as an update that helped users specify payment conditions.” Those in the Bitcoin community maintain that the supply is finite but economists have also noted that the supply will dwindle as Bitcoin are lost. Either way, all signs point to the fact that it will be continued to be mined for the foreseeable future. Not only that, but experts will tell you that, despite what you might think, you haven’t missed the window for investing in cryptocurrency.
Were you fooled by some of these myths? You’re not alone. Educate yourself on the ins and outs of cryptocurrency to avoid investment mistakes.
Thanks to Ravinder Sahu.
The Deviant Investor