Over the last two years I had the chance to explain Bitcoin and Blockchain to a diverse range of people – in keynotes, panels as well as numerous media interviews. There are some recurring misconceptions that I would like to address, so that we can hopefully move beyond them and have more productive discussions going forward:
1. Bitcoin is not a digital coin or a file that you send from one computer to the other:
The Bitcoin symbol is just a symbol and quite misleading. Bitcoin is is simply an entry in a distributed ledger. No coin, no file. The term coin is just a metaphor.
2.Your crypto wallet does not hold any bitcoin:
just the public-private key-pair that identifies you as you and grants access to your funds that are recorded on the blockchain (distributed ledger), a record of transactions that lives on multiple copies on a P2P network of computers.
3. “Bitcoin is not backed by anything; it’s worth nothing”
Mining Bitcoin is in fact the output of a productive function to keep the Bitcoin Network safe from attacks and manipulation. It is governed by crypto economic incentive mechanisms defined in the consensus protocol, which ensures that distributed network of actors who do not know and trust each other all validate transactions according to the predefined rules – in an attack resistant, fault tolerant and collusion resistant way. The safer the network is, and as more people use the network, the more people will buy Bitcoin and the more Bitcoin is worth. Just as fiat currencies are determined by the strength of their underlying economy, and the respective demand of their currencies at forex markets, the value of Bitcoin — as a utility token of the Bitcoin network — will be determined by market trust in the strength of the network.
4. “Transactions are cheap”
While this was true for a long time, Bitcoin transaction fees have spiked recently due to network congestion. It depends on the size of your payment and the type of transaction whether a bitcoin transaction would be cheaper than any other alternative you have. Future solutions such as the Lightning Network could solve the issue if high transaction fees.
5. “Bitcoin is for criminals”.
This one is so boring I hate to even answer it. Yes, people also use cash for criminal activity, so what? Btw, Bitcoin is not anonymous (see details below). Knowledgeable criminals prefer cash and other methods. Law enforcement actually quite likes Bitcoin. I believe the people behind the “Wannacry ransome” have not been able to cash their fund for those very reasons yet.
6. “Bitcoin is anonymous”
Bitcoin is more traceable and less anonymous than cash. All transactions are public and transparent on the Bitcoin blockchain. You can use any Blockexplorer to monitor transactions to and from any kind of Bitcoin address. So if you are concerned about privacy, or if you are planning any criminal activity, don’t be fooled. Bitcoin is not anonymous, it’s rather pseudonymous. While the average Joe has no chance to find out who is behind a certain bitcoin address (unless you published your identity), if you become a person of interest to law enforcement, and they put enough effort into finding you (time and data mining of the block explorer correlating against other data points they can tap into) they will likely find out what you are trying to hide, even if you are good at covering your trails. Newer Blockchain projects, as Monero and Zcash are working with alternative cryptographic technologies that propose to allow much more privacy.
7. “You have to buy a whole Bitcoin”
I don’t know where that comes from. Obviously, you can also exchange fractions of a euro into another currency. Just to clarify: It is not a physical coin, a gold bar, or a barrel of oil. Just as any other fiat currency, it is easily divisible (it’s just an electronic entry in a database). So you can buy fractions of a bitcoin. Just make sure the transactions costs are not higher than what you buy.
8. “Bitcoin price only goes up”
It depends and is a matter of time perspective. In the short run this has not always been true, quite the contrary, but in the long run, it has been true until now. Bitcoin’s price has been on the upward move ever since the first Bitcoin was mined in 2009, but prices have been volatile, with long times of devaluation in between. While the Bitcoin price has all the potential to become much higher as the technology unfolds, if scalability issues and regulatory issues are resolved, and when network effects come into place. However, Bitcoin is getting more and more competition by it’s own forkslike Bitcoin Cash or Bitcoin Gold, and also by more anonymous solutions like Monero, Zcash, or scalable solutions like Dash and Stellar, or even Ethereum and similar platforms — if and when they manage to solve scalability questions first.
9. “Bitcoin and the underlying Blockchain technology are safe”
State of the art Blockchains like the Bitcoin Blockchain are designed in a way that it is very expensive to manipulate transactions. Hacking data on the Blockchain is much harder/more expensive than hacking data on a server. Therefore Blockchain technology can be seen as safer than client-server technologies. However, this technology also introduces new types of security risks: smart contract security, reliability of external data feeds (oracles), network attacks, attacks by hard fork.
10. “Bitcoin was hacked, so it is dangerous”
Bitcoin was never hacked. However, exchanges that trade Bitcoin and other cryptocurrencies have been hacked in the past (Mt Gox, Bitfinex, Coincheck, etc). These exchanges run on client-server technology, a technology with a unique point of failure, the exact reason what Bitcoin was created in the first place. Currently, we are seeing more and more decentralised exchanges being built, replacing centralised exchanges, to counter exactly that problem.
11. “Bitcoin is a currency”
It’s not just a currency, like fiat money. The Bitcoin blockchain and other public permissionless blockchains that followed are payment/settlement networks, and operating systems for a new way of organising society in a more distributed way, among actors who do not inherently know or trust each other, across boundaries of nation states. (Please read this post on Bitcoin vs Fiat for more detailed information).
12. “Governments can shut down Bitcoin”
Bitcoin is a distributed network of computers with no central servers. Shutting down Bitcoin would require a worldwide internet outage. Even if it happens for a few hours or days, the network will eventually sync again and will be operational. Bitcoin needs to have only a few nodes online in order to operate worldwide. However, governments can limit access to exchanges where Bitcoin is traded for fiat currencies with strict KYC (Know Your Customer) regulations.
13. “Bitcoin is a technology that will make society better”
The Bitcoin Blockchain and similar crypto economic systems are powerful technologies. Yes, we can use for the betterment of society, but if we do it wrong, we can also create a control machine beyond Orwellian Imagination.
That’s all I could think of for now. If you have any additional thoughts feel free to comment below or send me an email to shermin@blockchainhub.net.
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