As a relatively new and unique asset class, Bitcoin has garnered both fevered adulation and scathing criticism throughout each of its well-documented price cycles. However, the intense speculation and media interest in the broader cryptocurrency sector has led to the proliferation of several myths about the flagship digital asset. Here, we put ten common Bitcoin myths to rest.
Myth 1: Bitcoin is a Ponzi scheme
A Ponzi scheme is a specific type of scam that relies on a constant flow of new investors to give the impression of returns to existing participants while the operators of the scam take the bulk of the profits.
Bitcoin doesn’t share any of these characteristics. There is no central authority controlling or profiting from Bitcoin, but rather a decentralized node network in which anyone can participate. The Bitcoin ledger is transparent and immutable, such that all fund movements are visible from the moment that new BTC is minted as mining rewards.
Myth 2: Bitcoin has no intrinsic value
Intrinsic value can be a subjective term. In its purest financial sense, intrinsic value is designed to provide an accurate evaluation of an asset irrespective of market price. However, since it uses measures such as cash flow, it’s not suitable for many assets beyond stocks and companies. This includes Bitcoin, but also gold or other commodities that don’t have an underlying cash flow.
Using any broader definition, Bitcoin arguably derives value from factors such as its scarcity, unique status as the first decentralized digital currency, and global community of users, developers, and miners, all of whom have contributed to it becoming an asset worth over one trillion dollars at its peak.
Myth 3: Bitcoin has no utility or purpose
Bitcoin has tens of millions of users across the globe. Some people pay for services using BTC, some hold BTC as a passive investment in the hope it will continue its upward trajectory over the long term, while others trade speculatively on its volatility.
BTC is also legal tender in countries such as El Salvador and the Central African Republic, where it is used as a medium of payment. It also serves as a medium of exchange and store of value for people in countries where extreme inflation means that the national currency is more volatile than BTC.
Myth 4: Bitcoin is anonymous and used by criminals and money launderers
Bitcoin is pseudonymous, rather than anonymous. Even though the network doesn’t require users to identify themselves by name, all transaction activity from any given address is publicly visible. Bitcoin’s pseudonymity has actually facilitated law enforcement, such as when the FBI was able to identify Ross Ulbricht as the mastermind behind dark web marketplace Silk Road, in part by linking on-chain activity to real-world accounts.
Furthermore, the increasingly widespread application of FATF (Financial Action Task Force) anti-money laundering rules and implementation of cryptocurrency regulations in many jurisdictions mean that it’s more difficult than ever for criminals to escape detection when using BTC for nefarious purposes.
Myth 5: Bitcoin isn’t secure
While hacks and security incidents are unfortunately rife in the cryptocurrency sector, this doesn’t mean Bitcoin is inherently insecure. The Bitcoin blockchain has operated successfully without interruption or any major incident, such as a 51% attack, since 2009.
However, individual accounts holding BTC can still be subject to theft, where criminals aim to steal cryptocurrencies by gaining access to private keys. One analogy is with a bank account. Cybercriminals may target individuals and successfully manage to gain access to their bank accounts using stolen e-banking credentials, but this doesn’t mean the bank itself isn’t secure, or anyone else’s funds may be at risk.
Learning some basic crypto security precautions can help to keep your funds safe from cyberattacks.
Myth 6: Bitcoin can be used to evade tax
In many jurisdictions, Bitcoin and other cryptocurrencies are taxable, or at least reportable for tax purposes. The precise tax regime will vary according to the country of residence. In the United States, cryptocurrencies are generally treated as assets and subject to capital gains tax, while other countries, such as Switzerland, don’t charge taxes on cryptocurrency gains. However, crypto received as income may be subject to different treatment.
Although most tax authorities will require self-declaration of crypto-related activities, it’s worth noting that all activity can ultimately be verified on-chain against an individual wallet address. Also, exchanges and other crypto service providers are required to comply with local rules regarding tax declaration and can be legally compelled to hand over information about individual transactions if the tax authorities demand it. As such, Bitcoin is not an ideal vehicle for tax evasion.
Myth 7: Bitcoin is a fad, and the bubble will eventually burst
Over the time since its genesis, Bitcoin has undergone several identifiable market cycles where the price has increased to a peak high, most notably in 2014, 2017, and 2021. The run-up to these highs tends to be accompanied by intense market speculation and hype, leading to criticisms that the price is inflating like a bubble that will eventually burst.
While it’s become routine for BTC prices to correct after these highs, market activity has never impacted the ongoing operation of the Bitcoin network or resulted in a widespread loss of appeal that would indicate the end stages of a fad.
Myth 8: Bitcoin will eventually replace the entire financial system
Bitcoin has a hardcore supporter base known as Bitcoin Maximalists, many of whom claim that it will eventually prevail over all other currencies and even the traditional banking system.
Bitcoin has seen tremendous success as a new asset, considering its growth in the relatively short time since its genesis. However, most people don’t view Bitcoin as a viable alternative to the traditional banking system, and there are compelling arguments against this hypothesis. One is the Bitcoin network’s lack of scalability to Visa-like transaction speeds, and another is the fact that very few people use Bitcoin exclusively as a medium of exchange and store of value on an everyday basis. Therefore, there is currently no evidence to suggest that Bitcoin will replace the existing financial system.
Myth 9: Bitcoin is too technical for the average investor
Investors should always be prepared to spend some time researching an asset before adding it to their portfolio. However, that doesn’t mean anyone needs blockchain technology expertise to invest in Bitcoin.
A basic understanding of the fundamentals enables you to understand some factors that influence BTC prices. But it is quick and easy to onboard to Bitcoin via an exchange like Bitstamp without having extensive technical knowledge or even needing a crypto wallet.
Myth 10: Bitcoin is dead
Bitcoin has been declared dead hundreds of times since it launched in 2009 – virtually every time the market loses any significant value or a major incident in the crypto industry occurs.
However, Bitcoin isn’t dead. In fact, it continues to operate as reliably and securely today as it has done for more than a decade and a half since the genesis block, gaining more users and recognition over time.