Although Bitcoin has been around for more than seven years now, there are still plenty of myths about this technology percolating among the general public and the mainstream press. Bitcoin is sometimes a difficult subject to grasp because it requires a basic understanding of many different areas of study such as cryptography, economics and computer science.
Here are ten different popular myths about Bitcoin that still generate discussion in 2016.
1. Bitcoin Is Dead
The most common myth that people repeat about Bitcoin is that it is dead and no longer used by anyone in the world. There is a website, Bitcoin Obituaries, which keeps track of the declarations of Bitcoin’s death going all the way back to 2010. At that time, bitcoin was trading at $0.23.
In reality, Bitcoin is currently at its most successful point in history -- at least when measured by the number of transactions that are happening on the network every day. The real problem right now is scalability (increasing block size to handle more transactions), which Blockchain Capital Managing Partner Brock Pierce recently pointed out is a sign of its success.
2. Bitcoin Is Anonymous
Although Bitcoin is often referred to as the “anonymous currency of the dark web,” it is more correct to say that Bitcoin addresses are pseudonymous. This means that there is an identifiable address (or many addresses) for each user on the network, but no one necessarily knows who is behind each address.
With Bitcoin, it’s important to remember that every transaction is recorded on a completely public ledger that anyone can view on a block explorer. A few blockchain analytics companies have popped up over the past few years, and they’re able to deanonymize large portions of the network.
3. Bitcoin Is Completely Transparent
It’s also a myth that Bitcoin is completely transparent. As mentioned in the above section, the true identities of the individuals or organizations behind specific Bitcoin addresses are not always known. There are also various privacy-enhancing services, such as JoinMarket, which allow users to enhance their privacy on the blockchain. There are also other enhancements, such as Confidential Transactions and Zerocash, that could come to Bitcoin in due time.
Rather than being completely anonymous or completely transparent, Bitcoin is better identified as somewhere between these two extremes.
4. Bitcoin Is Used by Terrorists
Whenever Bitcoin is brought up in a movie or television show, it’s almost always being used by some kind of serious criminal or terrorist; however there is no evidence of terrorists using Bitcoin on any noteworthy scale. In fact, a Europol investigation from earlier in the year found, “Despite third-party reporting suggesting the use of anonymous currencies like Bitcoin by terrorists to finance their activities, this has not been confirmed by law enforcement.”
Although Bitcoin is sometimes used for illegal transactions on the Internet, the reality is that the privacy issues related to the public blockchain make it a poor choice for terrorists. In the world of untraceable payments, cash is still king. The Winklevoss Twins, who founded a Bitcoin exchange called Gemini, have gone as far as to say Bitcoin is a haven for really stupid criminals.
5. Bitcoin Is Not Backed By Anything, So It Has No Value
Many gold bugs and those who do not understand the value of a decentralized, censorship-resistant digital payment network believe bitcoins are essentially worthless because they aren’t backed by anything. There are varying opinions on this point. Some believe bitcoin’s scarcity is the main attribute that gives it value, while others claim bitcoins are useful because they are required to use the world’s most prominent and secure decentralized ledger.
Currency Wars author and gold bull Jim Rickards recently took issue with the argument that bitcoins are backed by nothing, pointing out that like all currency in the history of money, bitcoins are backed by confidence. (Also known as consensus.) Gold is valuable because people agree that it is.
6. Bitcoin’s Price Volatility Makes It Useless
While Bitcoin has had quite a volatile history, the trend has definitely been toward stability since the first blocks were mined in early 2009. Having said that, not many people are attempting to use bitcoin as a unit of account right now. Instead, the digital currency, commodity or however you want to define it is mainly viewed as a store of value by those who hold it.
There are also various mechanisms for using the Bitcoin network for payments while avoiding the volatility associated with the token of value. Some Bitcoin companies, such as Circle and Coinbase, allow users to store funds in U.S. dollars or other fiat currencies before making Bitcoin transactions on the user’s behalf.
7. Bitcoin Is a Ponzi Scheme
Bitcoin is not a Ponzi scheme for these reasons:
- A Ponzi scheme requires an initial founder who persuades investors that they’ll make some sort of profit. There is no central point of power in Bitcoin, as it’s a decentralized system, so no promises of profits are made by the network.
- A Ponzi scheme always requires new investors to pay off earlier investors. This is not the case with Bitcoin, as the system can work with practically any number of users. However, the network is stronger and more resilient when used by more people.
- If Bitcoin is a Ponzi scheme, then all other forms of money were also initially developed as Ponzi schemes.
8. Bitcoin Is Only Used for Illegitimate Purposes
One of the fundamental values of Bitcoin is its resistance to censorship. As Elon Musk put it in 2014:
“I think it’s primarily going to be a means of doing illegal transactions. But that’s not necessarily entirely bad. You know, some things maybe shouldn’t be illegal.”
What is or isn’t a legitimate or legal transaction can change when moving between various jurisdictions, but Bitcoin is also used for completely legal purposes. Some people use Bitcoin to save 10-20 percent on purchases at Amazon, Starbucks and Target via Foldapp and Purse.io. Others see it as a valuable tool for cheaper international money transfers and remittances. Abra, Align Commerce and Freemit are three startups using Bitcoin to lower the costs of money transfers around the world.
9. Bitcoin Mining Wastes Electricity
A recent report found that Bitcoin’s network hashrate could consume as much power as Denmark by 2020. Other reporters dispute this characterization, pointing out that Bitcoin uses the same electricity as the yearly consumption of 674.5 average American homes, two Amtrak locomotives or a California hydroelectric plant. Do these things waste electricity? It depends on your point of view. The reality is that the use of computing power serves a purpose in Bitcoin, which is securing all of the transactions on the network. If you don’t think Bitcoin is valuable, maybe that’s a waste. If you don’t think fiat currencies are valuable, maybe keeping the lights on at the Federal Reserve is a waste.
Electricity-intensive Bitcoin mining is essentially a way to prove that someone has expended resources in hopes of getting a block reward and transaction fees in return for their efforts. Proof-of-work, as it’s called, acts as a prevention mechanism against Sybil attacks (forged identities) on the Bitcoin network. Waste? You decide.
10. The CEO of Bitcoin Was Arrested
When the general public reads about Bitcoin, the connection is often made with Silk Road or Mt. Gox. Many people actually thought it was Bitcoin that was shut down by the F.B.I. in 2013, and not the anonymous online black market (Silk Road); or that it was Bitcoin that collapsed in early 2014, and not the failed Bitcoin exchange (Mt. Gox). The inability to make the distinction between Bitcoin and the companies or services built on top of it has been a huge problem for the digital currency in terms of education.
Because of this inability to distinguish between Bitcoin and Bitcoin companies, many people thought the CEO of Bitcoin had been arrested in the cases of Silk Road founder Ross Ulbricht, Mt. Gox CEO Mark Karpeles and BitInstant CEO Charlie Shrem. Of course, the reality is that there is no CEO of Bitcoin.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, NASDAQ, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.