Cryptocurrency Myths You Should Be Aware Of
People love stories, and nothing has spawned quite as many as the cryptocurrency. Almost everyone knows the tale of would-be investors selling entire homes just to get a piece of the pie or someone who bet big on Bitcoin and has lost it all. While those stories are almost certainly real, they are not the norm, and there are plenty that are fabricated. Though blockchain technologies and cryptocurrencies are an emerging industry, there are plenty of legitimate players involved being value to the space. there are just as many are myths.
The challenges with cryptocurrency myths is that they can people down poorly informed paths, resulting in losses and disappointments that are entirely avoidable. Here are 10 such myths:
1. Cryptocurrencies Are Completely Anonymous
One of the things that scare people away from trading or investing in cryptocurrencies is the idea that everything is completely anonymous. That is a myth that is lent credence by a history that included accusations of being complicit in illegal transactions. While the negative associations may be justifiable, the fact is most cryptocurrencies don’t offer that much secrecy.
Transparency is a cornerstone of cryptocurrencies and blockchain technologies. All transactions, for example, are tracked due to how blockchain functions. Given enough time, people can track down what crypto address did what. Additionally, names appear whenever a sale or purchase takes place.
However, there are select currencies that offer more secrecy. Monero, for example, has additional layers of protection that make it harder to expose one’s identity.
2. Cryptocurrencies Will Keep Rising in Value
While trends over the past few years indicate that overall growth is cryptocurrency’s trajectory, this ignores the fact that for every Bitcoin and Ethereum are tens of coins that didn’t make it. Some just stayed flat and irrelevant, while others got discontinued because their growth never reached critical mass.
Cryptocurrencies are much more likely to settle down than experience infinite growth, owing mainly to the market’s volatility and lack of regulations. For example, someone with a significant enough share of crypto can liquidate assets, resulting in a drop from which the currency may never recover. Additionally, coins have mostly gained value for reasons unrelated to their actual potential or technology, due to nefarious activities such as pump-and-dump and Ponzi schemes. These methods, however, will eventually be outlawed as regulation comes in, preventing similar value spikes in the future.
3. Cryptocurrencies Have No Regulations
While it’s true that countries around the world continue to struggle with what laws to apply to Bitcoin and its ilk, there are a few rules in place. For example, issuers of cryptocurrencies in the United States must register with the Financial Industry Regulation Authority, as well as the SEC.
4. Cryptocurrencies Are Not Subject to Income Tax
Those looking to keep their money in their hands through cryptocurrency profit and investments may be incredibly disappointed. The IRS sees crypto as property, rather than currency, which just means that the laws that apply and exact numbers are different from what people would expect. Additionally, any money made off coins is subject to the capital gains tax.
Investors aren’t the only people who should keep an eye on their taxes. People paid in coins are also subject to income and payroll tax, and any payments using coins are treated just like any other kind.
5. Cryptocurrencies Can Currently Replace Fiat Money
While cryptocurrencies can and will likely serve the technological world in the future, their current position as an actual currency remains in doubt. That they have in value is assured — the problem is who is willing to accept that value.
Much of the problem revolves around its continually fluctuating value. Its lack of stability has pushed away many companies from accepting it as a form of payment. That, as well as the high transaction costs, has kept it from taking off as a real currency.
6. Cryptocurrencies Have a Finite Supply
Many traders claim that there is a finite supply of coins per currency and that the law of supply-and-demand will dictate its eventual rise in value. However, the idea that coins are limited is mostly a myth.
The fact is the cryptocurrency coin cap, no matter which one, is primarily a political or practical decision rather than a mechanical one. Bitcoin protocols have been previously altered to allow the mining of more coins, which as a whole, decreases the value of each one. In fact, more modern coins have moved on from a limited supply standpoint. That means that betting on caps to determine which currencies to invest in is a less reliable move, as that number could change in a heartbeat.
7. Cryptocurrencies Are Vulnerable to Government Disruption
One of the biggest fears that many would-be investors have regarding crypto is the threat of governments seizing their assets or even that they would eradicate them. However, of the concern people should have regarding coins, this isn’t one of them. Due to its decentralized nature, no entity can genuinely destroy it. As long as the Internet is running and someone is working on the coin, the coin exists.
8. Cryptocurrencies Are Environmentally Unsound
Some noise around cryptocurrencies revolves around the amount of power required to mine one. There are stories of entire crypto farms eating up energy just to solve the complex equations needed to earn a coin. Because the process is decentralized, there are no exact numbers for rates of energy consumption, but most think that it’s certainly high enough to arouse concern.
While mining does consume a lot of electricity, the usage is comparable to the expense required by fiat currencies. Banks around the world not only use energy for security and to run their offices, but they also expend a lot of money on security. In that respect, cryptocurrencies are no different from their paper brothers regarding environmental impact.
9. Cryptocurrencies Have Nothing Backing Their Value
One of the most confusing points about cryptocurrency that beginners run into is the source of its value. Most understand currency as something that’s back by something valuable, like gold. This understanding leads to confusion when digital currency enters the fray, as there appears to be nothing that justifies its immense value.
The first thing you should understand is that most fiat currencies have the same backing as other cryptocurrencies: faith and trust. Most countries do not base their currency’s value on the price of gold, but on what people think of the currency’s home country. While that may make things more difficult to handle emotionally, it does mean that as long as enough people believe and invest in crypto, it will continue to hold value.
10. Cryptocurrencies Are Illegal or are a Scam
This myth that cryptocurrencies are either illegal or a scam persists, despite what banks, businessmen, and tech professionals around the world may say. While there can be illicit activities and scams related to crypto, these are by no means enabled by or even exclusive to them. In fact, many of those scams apply to fiat currencies. The only thing that varies is the mechanism by which they occur.
As for legality, it’s often on a country-to-country basis, and rarely on personal ownership. Anyone from any nation can buy cryptocurrencies. Whether a region chooses to outlaw crypto is up to the businesses to watch out for, although not for long. Many countries, after research, have decided to allow coins into their markets.
Cryptocurrencies look as though they’re here to stay, so it’s best to destroy these myths as soon as possible. The more truths you know about it, the smarter your decisions regarding it will be. If you’re a business owner, you can figure out more accurately if it’s right to accept it as payment at this time. If you’re a trader, you can then make more informed decisions that are more likely to lead to profit.
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