As much as there is awe surrounding the story of Bitcoin, there also an adequate share of Bitcoin myths. The reason is that most people do not fully comprehend Bitcoins as they are based on a new principle called the Blockchain technology. There are facts and myths about Bitcoins creation, trading and usage. We cover 6 such popular myths about Bitcoins and explain Bitcoin in the right perspective. Here is all about Bitcoins..
Bitcoin is backed by nothing and so is worthless
This is a popular fallacy about Bitcoins. The big worry that a lot of people have is that there is really no backing. For example, gold has the backing of a physical asset. Currencies of nations are backed by the guarantee of the central bank. But, Bitcoins being non-fiat programs really do not have any backing. That is not correct. The reality is that Bitcoins are backed by a decentralized ledger which is entirely secure. The Blockchain technology is based on the concept of a decentralized ledger which is the backing for Bitcoin. Secondly, there is also a fear that Bitcoins are completely anonymous. Bitcoins do use synonyms but they can be clearly identified by where they come from. It is not like some anonymous person can use or misuse Bitcoins.
Bitcoin is completely anonymous and therefore it is illegal
As we explained above, Bitcoins are not anonymous; it is just that pseudonyms are used instead of actual identities. But all transactions do have an audit trail and can be linked to the creator. Interestingly, Bitcoin is not illegal. It is true that some central banks are unsure about its utility as a product while other central banks are still debating how to regulate Bitcoins. In fact, in very developed markets like Germany and Japan, Bitcoins are treated as legal currency. There are many online websites that accept Bitcoins as legitimate payment. Therefore Bitcoin is neither anonymous nor illegal. Of course, central bank's ability to regulate Bitcoins is something that is still evolving.
Bitcoin is used more by terrorists and for other illegitimate purposes
This is quite a popular myth that Bitcoins can be used by anti-social elements for the wrong purposes. It needs to be remembered that there are enough checks and balances in Bitcoins to prevent such misuse. In fact, Europol has confirmed that there is no evidence that terrorists have resorted to use of Bitcoins in a big way. The fact is that there are too many privacy issues that are in-built into the Blockchain technology and hence the preference is still for hard cash in such activities.
Bitcoin is a pyramid scheme (Ponzi scheme)
The other popular myth surrounding Bitcoins is that it is a Ponzi scheme. Let us first understand what a Ponzi scheme is and then let us look at why Bitcoin is not exactly a Ponzi scheme. A Ponzi or Pyramid scheme is a system which is based on the Greater Fool theory. Here the creator of the Ponzi scheme keeps collecting funds from people promising them attractive returns. As the funds start flowing, fresh capital is used to pay the attractive returns. The Ponzi scheme survives as long as new money keeps pouring in and the day it stops the entire scheme crumbles. Why is Bitcoin not a Ponzi scheme? Firstly, there is no central point of power in Bitcoins. It is a decentralized system and so no promises of profits are made. Secondly, a Ponzi becomes weaker as more people come in but Bitcoin is more like a telecom network which becomes stronger as more people enter the network.
Bitcoin has been too volatile of late
If one were to look at the chart of Bitcoin that would be the obvious assumption that the Bitcoins have become too volatile off late. That is more because most are not familiar with the history of Bitcoin. When Bitcoins started trading in 2009 they were quoting at around $2 and then sunk all the way to a fraction of a dollar. From the very inception Bitcoin has been extremely volatile and that is the way most currencies have evolved over the years. Bitcoin too will emerge as a stable currency only over a period of time. That is not something that is going to happen overnight.
Unlike money in bank, Bitcoins cannot be stolen
Sorry, that is again a myth! Just as cash can be stolen, just as gold can be filched and just as your bank account can be hacked, Bitcoins too can be stolen. Being a decentralized Blockchain technology, the probability of Bitcoin being stolen is probably lesser but the technology is again based on passwords and if the password token is lost then the Bitcoin virtually becomes unusable. In fact, each week quite a few Bitcoin mines are hacked. For example, your password can be stolen from a Bitcoin service provider, if you are not careful enough to use public and private keys. Many hackers actually hack into your email and then request a service provider like Coinbase to change your password. Remember, like your online bank account if your password authentication is too weak then there is every possibility of your Bitcoin being stolen.
Bitcoins are not as dangerous as it is normally made out to be by the press. There are enough checks and balance to ensure its safety. As a Bitcoin user, the onus is on you to ensure that you use rigorous two factor authentication and a combination of private and public key for all your transactions.
Share your Mobile Number with us and get started