The 3 Biggest Misconceptions about Bitcoin

  • Olga Feldmeier
  • September 10, 2019

Blockchain technology is on the rise; more and more projects focus on implementing it in our daily lives and inventing new business models and economies. The number of people employed in blockchain companies increases every year, with the future market cap expected to increase exponentially to 4.5 trillion in 2020[1]. It is time to clarify the 3 Biggest misconceptions about Bitcoin.

Time to look back on the first application of blockchain: Bitcoin.[2] Despite thousands of critiques and negative predictions, Bitcoin celebrated its 10 year anniversary and is still the globally dominant cryptocurrency with an overwhelming 71% Market Cap Dominance[3]. Still there are a lot of misconceptions about Bitcoin in the minds of the general public that need to be clarified. This article will cover the three biggest misconceptions about Bitcoin that exist today.

“Gets hacked all the time”

The first major misconception about Bitcoin, which is still very common, is that it is not safe since Bitcoins are stolen all the time by hackers. If you are into blockchain, you know this statement is more than false. Did Bitcoins get stolen from hackers? Yes. Is the Bitcoin blockchain unsafe? Definitely not. When you read or hear that large numbers of Bitcoins or other cryptocurrencies have been stolen this refers in 100% of the cases to exchanges that are used to trade Bitcoin, not the actual Bitcoin blockchain.

An exchange is a marketplace where you can buy and sell your cryptocurrencies. To access your coins, you need your private key (similar to a password). Some exchanges offer as a service for their customers to store their private keys. If an exchange with insufficient security measures gets attacked or the exchange itself is fraudulent, the private keys which you need to make transactions may get stolen. With those keys, the hackers can send your coins to their own address. Therefore, it is very important to use safe, professional and licensed exchanges such as the SMART VALOR Platform that have the necessary security measures implemented to prevent an attack.

To hack the Bitcoin blockchain itself, one would need all the computer power there is currently available on this planet and with it, it would still take over a million years to calculate every block back till the first genesis block. Furthermore, due to its decentralized nature, all estimated 100`000 nodes globally need to be hacked at the same time. The longer the Bitcoin blockchain becomes, the harder it is to hack it, since every block needs to be changed; and a new block is added every 10 minutes.[4]

“Only Criminals use it”

Another common misconception about Bitcoin is that it is used mostly by criminals and it is a good way to secretly move money from dubious sources. The reason for this claim is that Silk Road (the infamous marketplace for everything illegal on the dark web) used Bitcoin for payment. To be honest one of the first price increases of Bitcoin was in direct connection with Silk Road accepting Bitcoin.[5] But it is a big mistake to think that Bitcoin is a good tool for illegal activity; it is actually the opposite.

The Bitcoin blockchain is public and everybody has access to every transaction ever made on the chain, since its start in 2009. The transactions can be seen on various Bitcoin explorers from anybody who has internet. In the explorer, only the public keys are shown (a combination of numbers and letters), no names; but if you want to change your coins into FIAT currencies, you need to go through KYC (know your customer) and AML (anti money laundering) processes with an exchange. Of course there are other ways to change your Bitcoins into FIAT. But every transaction is saved forever in the Bitcoin Blockchain; a nightmare for somebody who want to move money illegally and hide his tracks.

The allegation that Bitcoin is used for illegal purposes is just as right as you would say that the US Dollar is used for illegal activities. Actually, a research showed that around 90% of all US Dollar bills contain residues from cocaine.[6] You can’t say that about Bitcoin; so which currency is dirtier?

“Has no real value”

The third major misconception about Bitcoin is that it has no intrinsic value compared to traditional currencies. Critiques argue that Bitcoin is just air since it is not backed by an asset like gold, for example. This statement is quite surprising since no currency nowadays is completely backed by real assets. The last time the US Dollar was backed by gold was in 1971.[7]

So, what is the big difference between Bitcoin and the US Dollar? Both have value because people believe in it. The value of traditional currencies is based on what people trust it to be worth since it is only a piece of paper or metal; so there is no big difference to Bitcoin. It is a question of trust and who do you trust more a government that is several trillions in debt or a completely secure democratic independent system. Also, Bitcoin’s supply is limited to 21 million coins, there will be no more coins after that. You can not say that about the US Dollar.

From a more technical point, one could also argue that Bitcoins true value is that it solved the 30 year old mathematical problem called the “Byzantine Generals Problem” which solved the biggest issue of digital currencies namely double spending of coins. So, Bitcoin thus has value and is way more than air.

To conclude, you can see that there is still a lot of misconceptions about Bitcoin and cryptocurrencies in general. These three were just the most prominent ones, but there are still many other false misconceptions about Bitcoin which can be clarified by a little research. Also, it is important to work with legitimate exchanges for buying your Bitcoins such as SMART VALOR, who are licensed and operate out of Switzerland.

[1] https://www.tokentarget.com/crypto-market-capitalisation-prediction-2020/

[2] https://101blockchains.com/history-of-blockchain-timeline/

[3] https://thetie.io/coin-detail/BTC.X#data

[4] https://www.techopedia.com/can-the-blockchain-be-hacked/2/33623

[5] https://www.theverge.com/2019/1/3/18166096/bitcoin-blockchain-code-currency-money-genesis-block-silk-road-mt-gox

[6] http://edition.cnn.com/2009/HEALTH/08/14/cocaine.traces.money/

[7] https://www.richmondfed.org/faqs/gold_silver