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Top 10 Bitcoin Myths

09 May 2022

NOAH Learn

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Top 10 Bitcoin Myths
1. Bitcoin is a scam/pyramid scheme / 2. Bitcoin is only used by criminals / 3. Bitcoin can be hacked / 4. Bitcoin is too slow / 5. Bitcoin has no intrinsic value / 6. Bitcoin is exclusive to the rich / 7. Bitcoin isn’t safe because it's not regulated / 8. Bitcoin isn’t a store of value because it's too volatile / 9. Governments will shut Bitcoin down / 10. Bitcoin is untraceable / Why Does This Matter? / 

Setting the record straight and debunking Bitcoin’s most common myths.

With any new technology that sets society on a new course, there will always be a fair share of myths and misconceptions that come along for the ride. Bitcoin is no exception. Bitcoin’s been shrouded in critical half-truths, fear-mongering, and general confusion since its inception. The rise of these myths stems from a misunderstanding of Bitcoin, how it operates, and how it challenges legacy systems.

So, in the interest of setting the record straight, here are our top 10 Bitcoin myths.

1. Bitcoin is a scam/pyramid scheme

Bitcoin, like any other currency or commodity, has its fair share of scammers and bad actors. Investors have been conned, bitcoin have been stolen, and there have been plenty of people who have taken advantage of Bitcoin’s early adopters.  However, these problems aren't unique to Bitcoin, and with due diligence, one doesn't have to be a victim of fraud in order to safely participate in the Bitcoin economy.

Bitcoin itself is not a scam. Scams are intentional deceptions meant to victimize and defraud others. Oftentimes, they rely on the use of false information or outright lies to trick people into handing over their money. Furthermore, scams offer no real value to the world. Bitcoin is the exact opposite — it offers a secure, advanced monetary system that allows for online transactions to anyone anywhere in the world at little to no cost. The scam narrative has lost much of its vigour throughout the past few years as institutions, political leaders, and government agencies have all begun acknowledging Bitcoin as a valuable asset and a legitimate method of exchange.

2. Bitcoin is only used by criminals

This is one of the most pervasive myths about Bitcoin. Many have the tendency to associate Bitcoin with criminal activity, partly due to its early associations with the Silk Road, a digital black market that was shut down by law enforcement in 2013. Bitcoin’s ability to act pseudonymously can indeed be frightening, but it's not much more so than the U.S. dollar, which studies show is the most widely used currency among criminals in the world. In fact, a 2021 Chain analysis report revealed that less than 1% of all Bitcoin transactions are tied to criminal activity, while half of all Bitcoin transactions occur between legal exchanges and legitimate establishments.

The use of a digital currency that offers privacy and ease of use is an asset to many law-abiding citizens. For example, it gives individuals in developing countries the ability to have full control over their money without having to go through a bank or pay outrageous fees. Others see it as a store of value, an inflation hedge, and a superior technology for global financial settlement. The benefits that a borderless, permissionless, and decentralized digital currency provides to the world far exceed the perceived dangers and symbolic associations it might have with criminal activity.

3. Bitcoin can be hacked

A common misconception among those uninitiated to Bitcoin is that it’s vulnerable to hacks. While it is true that some bitcoin have been hacked, they've only been hacked due to vulnerabilities on exchanges and custodial wallets. The compromised Bitcoin have nothing to do with its underlying code. It’s true that owners have lost their funds from phishing, social engineering, and keylogging attacks, but again, this is not unique to Bitcoin — it's the same with cash, debit cards, credit cards, or any other asset.

The Bitcoin blockchain itself has never been hacked. Bitcoin itself is not at large risk of being hacked or compromised. Bitcoin's network uses advanced cryptographic methods to ensure that transactions are secure and cannot be altered by anyone outside of the network. In Bitcoin's entire history, there has never been one instance of a double spend, nor has there ever been an instance of a successful brute-force attack on private keys. Bitcoin is incredibly robust and secure.

4. Bitcoin is too slow

Bitcoin is not slow. In fact, it's faster than nearly every other form of legacy payment out there (in terms of settlement confirmation). Bitcoin transactions take an average of 10 minutes to confirm, compared to 3 days for international wire transfers and 3-5 business days for credit card payments.

And with scaling solutions like Lightning, the myth of "slow Bitcoin" simply isn’t true. Lightning offers near-instantaneous speed with trivially inexpensive fees. At NOAH, we wouldn't be using Bitcoin if it was slow. On the contrary; it's lightning-fast.

5. Bitcoin has no intrinsic value

Some believe that Bitcoin has no intrinsic value because it isn't backed by any government or fiat currency. The intrinsic value of fiat currency is simply a symbol that denotes a government decree, backed by nothing more than faith. Faith itself is not intrinsic, it’s a system of belief, a nebulous concept that can be altered, shaped, and moulded by anyone with the power to do so.

The argument that Bitcoin has no intrinsic value is subjective, and although some argue that fiat currency is backed by the "full faith and credit of a government," faith itself wavers, as evidenced by the numerous hyperinflationary episodes and currency devaluations throughout history. Governments can default on their debt obligations, devalue their currencies, and borrow from future generations to pay for the spending of today. As such, these pressures challenge the symbolism of "intrinsic." If intrinsic value depends on a faith that falters and wanes, the concept becomes an inappropriate metric to value any asset.

Bitcoin is useful. A technology that is useful is valuable. It’s the first technology that turns electricity into security — security by design, security from the ground up and security as a requisite for the entire system to function. Bitcoin eliminates the need for trust, empowering individuals to conduct business with one another without the need for a central authority. Bitcoin grants the opportunity to take control of your money, no matter where you are, no matter your age, and no matter your social or economic status.

This is a revolutionary development in finance, and with its adoption will come a multitude of possibilities — all of which adhere to the fundamental tenet that the best metric for value is utility.

6. Bitcoin is exclusive to the rich

Bitcoin is accessible to anyone who downloads an application on their phone. A small download grants everyone access to the same network that works the same for every person on the planet. Unlike any other form of currency or financial technology, Bitcoin is globally inclusive. There are no banks that can refuse to facilitate transactions, no limits on how much value you can hold and spend, and no differences between the financial systems of mature and emerging markets.

Bitcoin is a tool for empowerment, an inclusive system that, by design, gives billions the opportunity to participate in the global economy. It's a means to a better and more prosperous world, as it enables unprecedented opportunities for personal autonomy, financial inclusion, and global trade.

7. Bitcoin isn’t safe because it's not regulated

Like any other asset, Bitcoin should be treated with the same caution as any other investment. As such, the regulatory climate around Bitcoin is changing rapidly. In the United States, the IRS has given guidance on how to treat Bitcoin transactions, the CFTC has begun offering rules and oversight, and the SEC has begun working on new legislation that intends to step in and regulate the space. These efforts are still nascent and will require time to fully clarify, but as investors begin to recognize the value of crypto, institutions will become more involved in crypto markets.

8. Bitcoin isn’t a store of value because it's too volatile

Bitcoin is a new asset class, and like many new asset classes, it’s subject to high volatility. However, Bitcoin's volatility has been steadily decreasing since its inception, and as the asset matures, many expect that this trend toward dampened volatility will continue. Bitcoin's volatility is a function of its liquidity, relatively small market participation (compared to traditional assets), and a highly speculative environment. As Bitcoin's market matures by these metrics, its volatility will likely decrease.

9. Governments will shut Bitcoin down

Bitcoin is a decentralized network that is not subject to the control of any one entity. While governments may pass regulations that impact Bitcoin's use cases, the Bitcoin network itself cannot be shut down. Bitcoin's resiliency has been proven time and time again, as it’s withstood multiple forks, attacks, and country mining bans.

Most recently in 2021, China passed a law banning domestic Bitcoin mining, and overnight, Bitcoin's hashrate dropped by 50% after Chinese miners went offline. However, within weeks, the Bitcoin network adjusted and grew back its previous hashrate. During this time, the Bitcoin network did not experience any downtime, as the Bitcoin protocol is designed to be resistant to censorship and government interference.

To be able to shut down the Bitcoin network, world governments would collectively need to either shut down the entire Internet infrastructure, or at the very least, coordinate a worldwide Bitcoin mining ban — both of which are geopolitically and economically unfeasible.

10. Bitcoin is untraceable

Bitcoin is pseudonymous, meaning that transactions are not tied to any real-world identity. However, Bitcoin is not anonymous, as all Bitcoin transactions are stored on a public ledger called the blockchain. While Bitcoin addresses are not necessarily tied to real-world identities, they can be traced back to exchanges or other services that require to Know Your Customer (KYC) and Anti Money Laundering (AML) compliance. By identifying individuals through KYC/AML, law enforcement and tax agencies can track Bitcoin transactions in the same way they can trace any other financial transaction. In fact, Bitcoin's transparency is one of its key advantages, as it allows for easy auditing and compliance.

Why Does This Matter?

We're not debunking myths just for the fun of it. We're debunking them because it's our job to make knowledge accessible. It's our job to arm folks with the tools to cut through the misinformation, manufactured confusion, and outdated misunderstandings that keep Bitcoin from reaching those who are hesitant to enter the space. But above all else, it's our job to show people exactly how Bitcoin can empower billions.

Bitcoin is not a scam. It's not a criminal enterprise. It's not slow. It has value. It's inclusive. Bitcoin is a lot of great things, but it's still shrouded in myth.

Myths persist because they're sticky — they're easy to remember and hard to forget. But Bitcoin is too important to be held back by myths. With the right knowledge and resources, anyone can learn about Bitcoin and make an informed decision about whether or not it's right for them.

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