Misunderstandings can spread like wildfire in the cryptocurrency space where there is no central authority to set the record straight. Here are some of the most common cryptocurrency misunderstandings, coupled with attempts to remedy them.
1. Bitcoin is too expensive
One of the most prevalent misconceptions about Bitcoin is that you need to buy a whole coin.
Bitcoin is currently divisible to eight decimal places, and can be made more divisible in future with the consensus of the network. The lowest denomination of Bitcoin—0.00000001 BTC—is called a Satoshi. This is currently worth only £0.000074, so almost anyone can join the party!
2. Cryptocurrency is for criminals
But while criminality might have helped catalyse the growth of cryptocurrency in the early days, it does not define the asset class. Cryptocurrency—just like physical cash—is a tool that can be used for good or bad. And critically, criminal use of bitcoin, ethereum and most other cryptocurrencies can be easily traced. Unlike the suitcases full of dollar bills once favoured by gangsters, cryptocurrency transactions are laid bare on an open ledger, and anyone wanting to trace a transaction can dive right in.
3. Cryptocurrency transactions are anonymous
One reason people think cryptocurrency is popular with criminals, is because they also think cryptocurrency transactions are anonymous.
This is a very common misconception, but in truth, the majority of cryptocurrencies are not anonymous. In fact, they are pseudonymous—meaning that transactions are made under a separate identity. This separate identity comes in the form of a coded address on the blockchain that can theoretically be traced back to a real-world identity if the cryptocurrency was purchased on an exchange with KYC (Know Your Customer) procedures.
Only privacy coins like Monero and Zcash can offer complete anonymity.
4. Cryptocurrency is distinct from blockchain
At some point after Satoshi Nakamoto released the bitcoin whitepaper, cryptocurrency and blockchain got confused in the collective imagination. Blockchain was heralded as a technological miracle, and cryptocurrency stayed on the sidelines with a slightly sketchier reputation.
In reality, cryptocurrency is a key part of public, permissionless blockchains because it acts as an incentive for people to maintain the network. Only private, permissioned blockchains can remain secure without cryptocurrency.
5. Cryptocurrency can’t be taxed
There are some countries—such as Portugal—where cryptocurrency is not taxed. In most major Western countries however, cryptocurrency is taxed, both as an investment and as a medium for transaction.
6. Cryptocurrency is too complicated
The internal workings of cryptocurrencies are complex, with transactions verified by complex cryptographic processes. But the insides of debit cards are pretty complex too, and it doesn’t stop us from using them.
As the ecosystem develops, wallet and exchange interfaces are becoming more user-friendly, making transacting in cryptocurrency a similar experience to any other electronic transaction.
7. Cryptocurrency isn’t safe
Because each blockchain node must agree on a shared history, any external attack would have to penetrate each node at the same time. This makes blockchains themselves theoretically tamper-proof.
The vulnerability arises when secondary software is introduced in the form of wallets, which are used to store the private cryptographic keys that authorise transactions.
Faulty and insecure wallets have led hackers and scammers to steal these private keys, creating billions in cryptocurrency losses over the years.