In the early days of cryptocurrencies, many believed they were simply a fad. Many people were not used to a new financial system of creating money through cryptography instead of relying on central banks and governments.
Fast forward to present times; we now have well over 5000 different coins in existence. While the promise of Bitcoin and other tokens potentially being a widely used transacting currency globally is unlikely to happen any time soon, cryptocurrencies are here to stay.
This invention has proven useful in a wide variety of applications aside from people transacting peer-to-peer. Like any new technology, strong naysaying forces are against cryptocurrencies, leading to many unnecessary misconceptions.
This article will cover the five most common myths one will likely hear, along with the truth behind them.
Myth #1: Cryptocurrencies need to have intrinsic value
Those skeptical of cryptocurrencies often argue about how they have no intrinsic value, especially as they are not pegged to something like a commodity. The issue with this argument is the world has operated quite efficiently using fiat currencies which technically have no intrinsic value either with nothing backing them.
Part of the reason the gold standard collapsed was that the demand for money became far greater than the amount of gold mineable. Over time, people got used to the idea of money having value because of what the government and others agreed upon to be worthy.
In the same breadth, cryptocurrencies are deemed valuable merely due to supply and demand. People understand they can use digital coins to buy and sell various goods and services based on their perceived usefulness.
Any currency is simply a unit measure for people to communicate value. Overall, currencies of any kind do not necessarily need to be backed by anything nor have intrinsic value as long as those using them agree they are valuable.
Myth #2: Cryptocurrencies are a scam
The cryptocurrencies industry is like any other where investors need to proceed cautiously and carry out thorough research. As with every financial market investment or study, one should approach cryptocurrencies with some level of skepticism while also appreciating their potential.
Ultimately, scams are as prominent in cryptocurrencies as they are with real money since criminals always look to capitalize upon new trends. However, it doesn’t mean the concept of digital currencies as a whole is fraudulent.
Therefore, it’s entirely up to the user or investor to understand how these coins work and alert themselves of any wrongdoings.
Myth #3: Every cryptocurrency other than Bitcoin is a ‘shitcoin’
As already mentioned, there are thousands of coins presently, which some may consider negatively overwhelming. Numerous investors do not take projects other than Bitcoin and perhaps Ethereum seriously due to the oversaturation.
It is naturally challenging to discern what so many of these cryptocurrencies bring from a value perspective. In truth, there are hundreds of useless coins, but they only represent a small fraction of the entire market.
We have to appreciate the applications of coins extend far beyond being a medium of exchange or a so-called store of value. For instance, we have projects like Monero, Zcash, and Verge focused on providing anonymity for privacy-conscious users.
Projects concentrated on smart contracts and blockchain integration like Polkadot, Stellar, Ethereum, and Cardano are implementing unprecedented methods for carrying out a plethora of transactions and processes cheaply, quickly, and efficiently.
These examples only scratch the surface. Overall, the landscape of cryptocurrencies is quite vast, and there are hundreds of discernible use cases and markets worth millions and billions of dollars.
Myth #4: Cryptocurrencies aren’t taxable
It is true that regulation in the present climate for digital currencies is relatively lax, which has given rise to many investors keeping much of their money in crypto. Furthermore, transactions occurring through such a medium make it difficult for authorities like governments to track.
So, how are cryptocurrencies taxable? It all boils down to when users exchange crypto to their native fiat currencies when mining, participating in airdrops, spending and receiving payment, holding coins, etc.
Unless one is living in a so-called fiscal paradise or a country where taxes are minimal, most first-world and developing countries can detect the trading and ownership of crypto assets and even transactions happening on exchanges.
Thus, normal income and capital gains tax would apply according to the respective laws of each country above prescribed income levels.
Myth #5: Cryptocurrency transactions are absolutely anonymous
One of the critical philosophies with crypto is anonymity. Technically, the vast majority of coins offer this quality for the most part, but not entirely. Because blockchains often rely on the public viewing and record-keeping of transactions to maintain transparency, confidentiality is technically not absolute.
Most cryptocurrencies exhibit this feature, to which they are referred to as pseudonymous rather than anonymous. It doesn’t necessarily mean anyone can easily trace transactions to an identifiable source, but experts in these technologies could.
To combat this dilemma, privacy-conscious coins like Monero, Zcash, and Verge employ sophisticated obfuscation techniques to ensure the senders’ and receivers’ information is not detectable whatsoever.
They achieve this advantage while still having a block explorer to uphold transparency. Other projects like Pirate Chain take it a step further where the coin is private by default without any alternatives to revealing public addresses.
The main point is most cryptocurrencies aren’t entirely anonymous. However, for lay people with no deep coding or cryptography knowledge, it is still difficult to trace.
Cryptocurrencies are a fascinating financial instrument. They are still largely misunderstood, which is expected since it’s still a relatively new market that has not yet gained considerable mass adoption and acceptance.
Understanding the mentioned misconceptions and, more importantly, what the truth is instead will help more investors appreciate how cryptocurrencies actually work.