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25 myths about bitcoin

More and more people are learning about cryptocurrencies every day. And everyone perceives this new technology in their own way. There are quite a few skeptical people whose opinion is created by incompetent articles in the media, their own and others’ life experiences, various conjectures and assumptions about the essence, origin, further development and possibilities of Bitcoin technology. In this article we will try to debunk the most popular myths about Bitcoin and other cryptocurrencies at the moment. Perhaps something will be new to you and shed light on some of the misconceptions that have already formed in society. We believe that the technical difficulties associated with the early use of digital money should not be the cause of such myths and other misinformation. Form your own opinion about cryptocurrencies. We hope this article will help you understand a lot.

  1. Bitcoin is similar to other electronic money, nothing new. All existing e-money is tied to national currencies and fully controlled by the government. The money in the accounts can be blocked or confiscated. One of the main differences between Bitcoin and all other currencies and electronic payment systems (EPS) is that it is decentralised. It can’t be: ‘reprinted’ – the number of coins is known in advance, 21,000,000 – and they appear in the network strictly according to a pre-known algorithm; Destroyed – all the computers in the network replace a single centre, and the integrity of the block chain is protected by this large computer network from all kinds of attacks Change the source code without the consent of the majority of the community – both the conditions of appearance of the number of coins, and any other rules. Block or seize – Bitcoins are only controlled by someone who has direct access to the wallet. To arrest a Bitcoin wallet, you must first arrest its owner.
  2. Bitcoins do not solve problems that gold and/or fiat money cannot solve The basic function of money, its intrinsic content, is a measure of value, a means of circulation, accumulation and payment. Gold and fiat money, as monetary units, are in every position inferior to the possibilities that Bitcoin and other cryptocurrencies can offer. As a medium of exchange: Unlike gold, bitcoins are easy to store, can be arbitrarily split into very small pieces, and are quickly dispatched. Unlike fiat, bitcoins are more secure – they cannot be counterfeited, they do not wear out, they do not need to be reissued. All BTC transactions are transparent and can be seen by anyone connected to the internet. Therefore, a payment made cannot be disputed with the excuse that “the money didn’t come”. As a means of accumulation and savings: Cryptocurrencies have a predictable and diminishing issue No regulatory centre. No paperwork or permission is needed to open a Bitcoin ‘account’. You can always keep your Bitcoins under direct control, for example in your home safe. There are no national borders for Bitcoin – it can be instantly transferred anywhere in the world where there is an internet connection.
  3. Bitcoins are not backed, their value depends on the amount of electricity or processing power used to generate them When we say that the currency is backed, we mean it is linked to an exchange rate with a “reference” asset. The processing power used to generate bitcoins, kilowatts of electricity, cannot be used to determine the collateral value of bitcoins. The value of bitcoins is based only on how valuable they are to people, and the higher the price, the more people will try to generate them, which in turn will increase the complexity of generation and consequently make them even more difficult to mine. The truth is that nothing is secured, including government currencies and gold. The value and worth of classic monetary units depends on several factors, the most important of which is trust in the issuer (the central bank), trust that it will fulfil its obligations. But defaults of states (refusal to pay the national debt) have happened even in large economies. Gold has had a value in the eyes of people for thousands of years and does not need to be backed. The situation is similar with Bitcoin – its collateral is only how valuable it is to people who are willing to accept it as an exchange value. The general law of supply and demand is at work here. The main factor that determines the value of Bitcoin is its distribution and use in economies around the world.
  4. Bitcoins are illegal because they are not recognised as a means of payment There is a concept of money surrogates for illegal means of payment in Russia. Cryptocurrencies do not currently fall into this category. Calling them illegal is incorrect. Following the fundamental rule of “anything that is not prohibited”, Bitcoin is used as a means of payment around the world. In many countries, cryptocurrencies are already officially recognised as “private money” or a financial asset that is subject to general financial regulation. By and large, Bitcoin is a convenient unit of account, just like any other currency, equivalent to the value of certain things.
  5. Bitcoins are a form of financial terrorism because they only harm the economic stability of the state and the state currency The claim that Bitcoin was created for terrorist purposes and the destruction of the economy, to harm the state’s foundations, is completely untrue. Terrorism is a form of violence, and it is planned and intended to achieve certain goals. Cryptocurrencies are only one of the financial instruments whose use depends on who holds them. Bitcoin technology provides alternative solutions to many financial security issues. When used wisely, it can help to promote any business and the economy as a whole.
  6. Cryptocurrencies will only facilitate tax evasion, which will severely damage the global economy Now, even with the large number of transactions passing through the wallets of cryptocurrency users, the amounts that can be considered as profit and the basis for claiming taxes on it are in most cases extremely small compared to the same turnover in national currencies. To say that this is a way to evade taxes and that it will lead to the downfall of civilisation is fundamentally wrong. The responsibility for this, just as with “conventional” currencies, lies with specific people, not technology. Lawmakers in all countries are working on taxation options for Bitcoin transactions. In some European countries (Germany, UK, Netherlands, etc.) cryptocurrency transactions are subject to the same taxes as other currencies.
  7. Bitcoins can be “printed” by anyone, hence they are useless The complexity of Bitcoin mining at the moment is too great, besides it is increasing. As we know, Bitcoins are mined not one block at a time, but in blocks, and the reward per block is halved after every 210 thousand blocks mined. And if in 2009 the block size was 50 BTC, now it is 25 BTC, and in 2016 it will be 12,5 BTC. Due to the innovation of the mining equipment, the total capacity of the network has increased manifold along with the complexity. At the moment, a personal computer is not capable of providing the necessary processing power. Profitable mining already requires investments measured in hundreds of thousands and millions of rubles. The usefulness or uselessness of cryptocurrency is not determined by the fact that anyone can print or mint it, but by whether the cryptocurrency will be used by people in their daily lives.
  8. Bitcoins are useless because they are based on unproven/unproven cryptography Unproven and unproven cryptography is an absurd statement in itself. The SHA-256 and ECDSA algorithms, which are used in a working Bitcoin network, are well known industry standards for encryption.
  9. The first Bitcoin users were unfairly rewarded The first users of the Bitcoin system were rewarded for using and testing a yet unnecessary and misunderstood technology. They were rewarded for taking the risk of losing not only their time, but also their personal money. There is a lot of injustice in this world and rewards for early adopters hardly need to be discussed. Now about 2/3 of 21 million of all coins are mined and held by users. If you become a bitcoin owner soon, a little later you will also be considered one of the “first users” for someone.
  10. 21 million coins will not be enough for all of humanity’s needs You are probably forgetting that one Bitcoin represents 100 million indivisible units. 21 million coins is just over two quadrillion (209999999997690000) maximum possible units. It is supposed that by the time the last Bitcoin is mined, there will be some parts of the coin in circulation – milliBitcoins (mBTC) and microBitcoins (µBTC). However, denomination at odds of 1:10, 1:100 and so on is also possible.
  11. Bitcoins are stored in wallet files, just copy the wallet and get more coins! Bitcoins are not stored in wallet files, they are stored in a global distributed network, and the wallet is only a means of accessing that network. The wallet.dat file, which is created when you install your wallet, contains private keys that give you sole control over your coins. Knowing the wallet’s public address (where coins are sent) will not make anyone the owner of the wallet, no one can dispose of anyone else’s coins.
  12. Lost coins can’t be replaced, and that’s bad There are a lot of lost coins known today, which will most likely never be used again. But why do you think this is a bad thing. Coins are lost if a user loses access to their wallet, the wallet.dat file where their private keys are stored. In most cases this is the user’s own fault. Remember that the security of your coins is in your wallets and under your responsibility. Why there is no mechanism to replace lost coins? Because it is impossible to distinguish between lost coins and coins that are now unused (temporarily, or in cold storage). Loss of coins is an unpleasant situation for the user, but it is not a disadvantage for the crypto-economy. In this case, lost coins act as an additional benefit of the deflationary model – the fewer coins there are, the more expensive a single Bitcoin will be. “Lost coins make everything else slightly more expensive. Think of them as a gift to everyone.” Satoshi Nakamoto
  13. Bitcoin is a giant pyramid scheme Pyramids are created in any currency. The technology should not be confused with various online projects that may accept Bitcoin as deposits and are pyramid schemes. And people who are hungry for quick money and believe in unbelievable promises somehow blame the technology and not the people who deceived them. Also, cryptocurrency should not only be seen as a source of income. Bitcoin, first of all, is a means of payment, it is a technology, a way to generate new coins, and every transaction, every wallet is part of one huge system. It has nothing to do with the notion of a pyramid scheme. There is no regulatory, revenue-generating centre, just people building a new economy.
  14. the bitcoin idea will not work because there is no way to control inflation Inflation is simply the planned or natural increase in prices over a period of time, which is usually a consequence of currency depreciation. It is one of the foundations of the modern credit economy, which is built on a constant increase in the amount of money. Why and who can control inflation when the ways of issuing bitcoins and fiat currencies are completely opposite? A credit economy is not the only possible model. The key point here is that bitcoins cannot be devalued by a dramatic increase in inflation by any individual, organisation or government, as there is no way to arbitrarily increase supply. In fact, because of its growing popularity, a scenario of increasing demand for Bitcoin is more likely, leading to a permanent rise in the exchange rate and deflation. Deflation in crypto-economics is a decrease in the value of goods, where more goods and services can be purchased with less coins.
  15. The Bitcoin community are geeks, anarchists, conspiracy theorists and the gold standard In the early days of Bitcoin, this was indeed the case. Satoshi did his best to remain politically neutral, but his comments on technological solutions showed his libertarian sensibilities and hacker mindset. The creator of the first mining systems, Yifu Guo, who has long worked with Bitcoin and knows it inside out, reflected these sentiments in an interview, saying that their initial slogan was “better to go too far than to do too little”. “Bitcoin, if we can explain it properly, is consonant with the libertarian point of view. Although I’d rather write code than talk” – Satoshi Nakamoto. However, real “capitalist sharks” – retail chains, IT corporations, venture capital funds and even some banks – came into the cryptocurrency business after sensing an opportunity to make money. So, in recent years, the number and influence of true crypto-anarchists has been steadily decreasing. And there’s no telling whether that’s a good thing. After all, new ideas are best developed by enthusiasts, not administrators.
  16. Anyone with sufficient computing power can hijack control of a network As the number of generating nodes grows, it becomes increasingly difficult to do so. Even assuming that someone could take control of the network, the opportunities he would gain would be so negligible and incompatible with the gigantic cost of doing so, that the reasons for such an attack could only be ideological. Under no circumstances would he be able to use someone else’s bitcoins. The attacker can only undo his own recent transfers and freeze other people’s transactions. This very expensive attack is not worth the small benefits, so there is no rational economic reason to carry it out. It would already cost a minimum of $150-200 million to purchase and operate equipment capable of carrying out such an attack, and in its operation would constantly consume up to 50 megawatts of electrical power – the consumption of a large industrial enterprise.
  17. Bitcoin-accepting outlets are not possible, as it takes 10 minutes to confirm the transfer If payment for goods is sent through electronic or banking systems, it can take several minutes or days. In addition, the bank may cancel the transaction and the transaction will not take place at all. But even these circumstances have not hindered the emergence of e-commerce. In fact, Bitcoin wallets usually wait for 3 to 6 confirmations before coins are available for transactions, which means that the wait will be about an hour. If the payment is made on the spot, with Bitcoins the merchant already understands the irreversibility of the transaction and does not need to wait for the required number of confirmations. Many online retailers use a prepayment system. The customer can fund an account and then spend bitcoins from that account. In addition, payment gateways have been created that help to instantly receive payment confirmation from another country to be able to send goods quickly. Payment gateways act as an intermediary to confirm this transaction and speed up the entire process. When using such gateways, the seller receives the currency of his country rather than Bitcoin into his account. Additionally, the Coinbase payment gateway allows Bitcoin users to make purchases at many online shops that accept MasterCard.
  18. After mining 21 million coins, no one will generate blocks confirming transfers When the costs of generation cannot be covered by the reward for block creation, miners will be able to profit from the transfer fee. It is expected that in the more than 100 years that will elapse before issuance is almost nullified, the turnover in the Bitcoin network will be more than sufficient to provide rewards to miners through commissions alone. Also, bitcoin holders will have an interest in generating new blocks, as their coins will become worthless if the generation stops.
  19. There is no built-in payment cancellation mechanism, and that is bad The inability to cancel a payment is a built-in fraud protection mechanism. It is your sole responsibility to be careful when sending, to trust the recipients, as well as the responsibility for the security of your bitcoins. Organisations like PayPal have a responsibility to prevent fraud. If you buy something on eBay and the seller doesn’t ship it to you, PayPal takes the money from the seller’s account and returns it to you. This strengthens the eBay economy, as buyers become aware of their limited risk and make even risky purchases. Suppose you negotiate the sale of your goods or the purchase of bitcoins, transfer the funds (you send the goods) to a scammer, who sends you the coins, but then cancels the transaction. If you have the bitcoins, they are yours alone. If you allow a mechanism to cancel the payment, it will allow another person to take your funds. Either you have full control of your funds or fraud protection, but not both at the same time.
  20. Quantum computers would compromise the security of the Bitcoin network Yes, theoretically it is possible. Quantum computers capable of doing this do not currently exist. If they do, if the security of the Bitcoin network is compromised, developers would be able to move the network to post-quantum cryptography. This will cause some disruption to the network, but after a while it will be back up and running. Keep in mind that not only cryptocurrencies, but also the entire Internet – shops, payment systems, exchanges and most importantly – banks – are using crypto. In other words, the entire modern financial system will be at risk. Cryptocurrencies, due to their flexibility, will be able to overcome the crisis faster than others.
  21. Bitcoin generation is energy-consuming and environmentally damaging A lot of electricity is needed to maintain the necessary computing power to mine Bitcoin. But there is no need to exaggerate. The power consumption of the entire Bitcoin network is no more than the needs of a small town with a population of 100 thousand people. If we compare Bitcoin mining, for example, to the mining of any mineral deposit, as well as to any human activity, the process can be called one of the most economical and environmentally friendly on the planet. It should not be forgotten that all modern financial systems, e.g. the numerous server rooms and branch networks of major banks, consume the same amount of energy. However, no one accuses them of violating environmental regulations.
  22. Shopkeepers will not be able to set bitcoin prices for goods due to unstable exchange rates Shopkeepers and retailers, large online resources, mainly use payment gateways to accept bitcoin, which perform transparent conversion of payments from Bitcoin to local currencies and back. Sellers set the value of the goods in their country’s currency. Buyers of the goods pay in bitcoins, which are converted into that currency, which does not affect the value of the goods – sellers always get the desired result, regardless of the bitcoin exchange rate and its volatility. Some sellers, such as Overstock, keep a portion of the cryptocurrency proceeds for themselves, thus assuming the risk of volatility.
  23. Bitcoins can be liquidated by governments because they are illegal (like Liberty Dollar) and because they are used by criminals. Bitcoin cannot be liquidated because it has no centralized control mechanism: there is no single information repository and centralized management, and there is no point whose failure (prohibition) could bring the entire network down; no government can order the liquidation of a cryptocurrency. Maximum forceful government intervention could look like banning the use of cryptocurrency for settlement in a particular country; this is not likely to be a universally unpopular method. An attempt to issue an alternative currency in the US (Liberty Dollar) has been seen as fraudulent and counterfeit. Bitcoins are not used as physical coins and there are no assurances that they are backed. Criminals can use either Bitcoin or any electronic payment system, although statistics show that the largest number of crimes is conducted through cash, 99 per cent of which is in US dollars.
  24. Bitcoin – a scheme for making quick money online or a high-yield investment? Bitcoin has received a lot of publicity because of its meteoric rise in value in 2013 and numerous “success stories” in the media. The more attractive the story of another Bitcoin millionaire looks, the more people hope that Bitcoin will quickly bring them superprofits, the more often other fraudsters will appear, using Bitcoin as bait for their own criminal purposes. It is quite possible that investing in bitcoin is a good investment, as its value could rise very significantly. Just as there is a possibility that Bitcoin will be worthless. Investing in cryptocurrency is not likely to impress you anytime soon; the bitcoin exchange rate is likely to be unpredictable for the next few years. The right investment is not about making a quick profit, and you should not see bitcoin as a way to get rich quick and risk-free. For the average non-investor, my advice would be to buy some coins, at a convenient rate, with a bit of spare cash, and put them in your wallet for cold storage. The main thing – do not count on the fact that this investment in the near future will bring fabulous wealth. The time of rapid growth of tens and hundreds of times, as it was a few years ago, is over – then the so-called “low base effect” worked, when Bitcoin price growth on a global economic scale was laughable. But now its capitalisation is already measured in billions of dollars, so there will be no astronomical growth.
  25. You can make money just by installing a Bitcoin client on your computer Installing a Bitcoin client will not start you earning anything. Once upon a time, in the early days of Bitcoin, people would put a wallet on their computer or laptop, turn on the mining function and mine the cryptocurrency on the CPU. Nowadays, only specialised farms, which occupy large areas and consume huge amounts of electricity, can have enough computing power to mine Bitcoin profitably. This way of earning money – generating coins on a home computer – is no longer available to ordinary people. However, some forks can be mined on processors and even hard drives. But the profitability of this activity rarely even covers the cost of electricity.