The adoption of cryptocurrency and blockchain technology has significantly advanced since Bitcoin was created in 2009.
Nonetheless, there are persistent myths about cryptocurrencies and blockchain that hinder its adoption.
Below are some common myths, and the facts to debunk them.
Myth: Bitcoin and blockchain are the same things.
Fact: They’re different things. Bitcoin is a cryptocurrency. Blockchain is the technology which Bitcoin is built upon.
Bitcoin is a cryptocurrency, also known as a digital asset. It can be exchanged between two parties and used to buy goods and services.
Bitcoin transactions are recorded on a digital ledger known as a blockchain network. It contains Bitcoin’s entire transaction history and it’s publicly available to everyone. Its blockchain securely records transactional data by bundling it into ‘blocks’. New blocks are processed approximately every 10 minutes. This verifies transactions and adds another block to the ‘chain’.
Myth: There is only one blockchain.
Fact: There are many different blockchains.
Bitcoin, and other cryptocurrencies such as Litecoin and XRP, each run on their own blockchain. Each are separate from one another and do not directly interact. One cannot transact Bitcoin over the XRP blockchain as each asset is coded differently. This is like paying for a coffee in Australia with British Pounds – the cashier won’t accept the money!
Myth: All cryptocurrencies are the same and are only used for blockchains.
Fact: Cryptocurrencies and blockchains have a wide range of uses.
Industries like finance, medicine, energy, real estate and voting can take advantage of blockchain technology.
Cryptocurrencies such as Bitcoin and Litecoin, amongst others, are digital money. They can be used to purchase goods and services such as food, flights or even video game systems.
The Australian Securities Exchanges (ASX) will transition from its existing CHESS system to a blockchain system in April 2022. The blockchain become the new prime infrastructure for clearing and settling ASX trades.
Another example is medical focused blockchains, which store health data on a secure private network. This allows health professionals to easily access a patient’s records, no matter where they are.
Myth: Cryptocurrencies are speculative and backed by nothing, unlike money.
Fact: Cryptocurrencies are backed by the technology supporting them and its users.
Fiat money and Bitcoin are both not back by a store of value. Fiat money is government-issued currency that isn’t backed by a commodity such as gold. The word ‘fiat’ is Latin that roughly translates to ‘it shall be.’
Bitcoin’s value comes from the technology it’s built upon and the users who trade it. It also has built-in scarcity. Unlike fiat money, there is a hard limit on how many Bitcoins will exist; 21 million. This means, as demand for the asset increases over time, so too should its value. Hence, Bitcoin is considered a ‘deflationary’ asset.
Fiat money, like the Australian Dollar, is created by a government’s central bank. Its value comes from the currency’s issuing government and those who trade it. There is no limit as to how much money can exist. Central banks, like the Reserve Bank of Australia, can introduce new money into an economy. This action has the potential to increase inflation, which in turn decreases the buying power of money.
Historically, governments would have reserves of precious commodities, like gold or silver, backing their money. Printed paper money could be redeemable in that commodity. However, governments transitioned to fiat currencies – most notably the US government in 1971 when it cancelled the direct convertibility of US dollars into gold.
Myth: Digital currencies are primarily used for illicit activity.
Fact: 0.5 per cent of Bitcoin transactions in 2019 was transacted on the ‘dark web’ – far less than fiat money.
This equates to roughly US$829 million. Compare this with fiat money. The United Nations Office on Drugs and Crime estimates that in 2009, criminal activities generated US$2.1 trillion. This is 3.6 per cent of global GDP that year or 2,533 times the amount processed through Bitcoin!
Digital asset exchanges like BTC Markets actively stamp out the misuse of cryptocurrency. Australian exchanges must register with AUSTRAC. They also comply with all anti-money laundering (AML) and know-your-customer (KYC) policies. Exchanges record known web destinations used for illegal purposes. Any assets sent to these addresses are stopped.
Myth: Cryptocurrencies are unregulated.
Fact: Cryptocurrencies are regulated.
Cryptocurrency and blockchain technology are relatively new compared to existing financial systems. As a result, governments are playing catch-up to create legislation for this new era.
2020 has seen a lot of development in cryptocurrency regulation. The European Securities and Markets Authority (ESMA) plans cryptocurrency regulation as part of its 2020-2022 focus. The US Congress recently introduced over 30 cryptocurrency and blockchain bills.
Cryptocurrencies are legal and treated as property in Australia. This means they’re subject to capital gains tax. SMSFs are eligible to invest in cryptocurrency as permitted by their fund’s investment strategy. Digital asset exchanges are registered with AUSTRAC and fully compliant with all AML/KYC requirements.
Bloomberg, in their August 2020 Crypto Outlook, state “Something needs to go wrong to end mainstream Bitcoin adoption”. The future of cryptocurrency and blockchain is bright.
To find out more about how you can start investing in cryptocurrency, head to btcmarkets.net
This article was developed in collaboration with BTC Markets a Stockhead advertiser at the time of publishing. This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
Barry Stroman was a reporter for Zerg Watch, before becoming the lead editor. Barry has previously worked for Wired, MacWorld, PCWorld, and VentureBeat covering countless stories concerning all things related to tech and science. Barry studied at NYU.