Scour the internet for 5 minutes and you’ll find a s**tload of misconceptions and plain myths about blockchain and cryptocurrency. Obviously, just like crypto itself, the truth tends to fluctuate and different countries or regions tend to have different approaches to our favored investment or trade currency. Instead of blankly looking at all of the misinformation around, let’s tackle 10 of the most commonly held beliefs we’ll gladly debunk. Oh, by the way: yes, we would have been able to include 20 myths here, but, alas, a newspaper only has so many pages and we’ve got other subjects to cover, but if you’d like us to pay even more attention to this, drop us a line! We’ll gladly bust some more myths online or in an upcoming issue.
MYTH 1: There are no regulations, capo!
One very commonly held misconception is that cryptocurrency currently isn’t bound to any regulations. Sorry to burst your bubble, but even though bitcoin and many other cryptocurrencies broke big on Dark Web sites like Silk Road during their start-up, they are bound by regulations – or might be soon.
Most countries stand together in allowing cryptocurrency, but some of them – like Algeria, Bangladesh, India, Macedonia, Morocco, Nepal and Pakistan – have effectively band the main subject of this newspaper. Europe is ‘crypto-curious’. The Germans (who tax cryptocurrency differently depending on whether you buy, invest or sell) and – of course – the Japanese (who treat it as miscellaneous income) are already wielding Bitcoin as a financial instrument. Dubai is poised to become the first country with a government running on blockchain. And China, as ever, would love to expand its influence with its own cryptocurrency.
Also, always expect the IRS to be on patrol. According to a 2017 SEC investigative report, the offer and sale of virtual organizations is subject to federal securities law, whereas issuers are required to register with the SEC and the FIRA (Financial Industry Regulatory Authority).
You might state that ‘currency’ in this sense is a little bit of a misnomer: the IRS views cryptocurrency as property for tax purposes and if you’ve made money with it, you’re expected to report capital gains. The US, the UK and Australia all treat cryptocurrency the same way. Wages paid in crypto are subject to – shudder – federal income and payroll tax and payments need to be reported. We know: it sucks, but think about all of the good are governments are doing with our tax money. Like building roads, supporting the mili… uh… Yeah. Think about it.
MYTH 2: It’s all about anonymity, man!
Think you’ve been clever by using pseudonymous addresses? Think again, as your identity is still revealed during purchases. Also, don’t forget about patterns. By analyzing them, some brilliant minds (and programs) can link your pseudonyms together to identify who you are. Long story short: blockchain activity is pretty traceable. Bitcoin is a public ledger and lots of governments have established relationships with major exchanges in order to be able to map your address. It kinda makes sense if you think about it: they want to make money on your transactions, of course. This is a capitalist world, bro.
While only the public addresses of wallets are recorded on cryptocurrency blockchains and personal information is omitted, previous transactions can return to f**k you in the ass. Once someone is able to link your public address to your actual identity, all of your past transactions will be visible.
The IRS has been pretty active: they’ve been using services such as Chainalysis to link a great many bitcoin wallets to actual users and other companies, such as Bitfury, offer similar tracking options.
However, don’t forget decentralization and anonymity are cool to have even if you aren’t a supervillain intent on reshaping the world through a nefarious cryptocurrency-related master plot. Law-abiding citizens living in economically or politically unstable environments or having to deal with corrupt local banks can definitely use some layers of anonymity, they just might not be as foolproof as you might expect.
Still wanna be a caped crusader? There’s options, like Monero, which adds layers of anonymity by using ring signatures and address derivation to cover up your transaction. We’ll talk about Monero, Dash, Zcash and NavCoin as well as about their history with ransomware, cryptojacking and money laundering in another article soon. Pinky promise.
MYTH 3: Blockchains are volatile as hell. It can’t be reliable!
Let’s be totally honest here: cryptocurrencies aren’t the most stable of currencies out there. That’s because their value at any time is highly influenced by news of security breaches and vulnerabilities, commonly-held perceptions and media coverage. Also, it’s tough liquidating large balances without affecting the market.
Similar to all currencies, cryptocurrencies are only worth as much as someone is willing to pay for them. They’re not backed by physical assets, such as real estate property, but that doesn’t mean they’re purely speculative in nature either… or didn’t you know your precious US dollar has no intrinsic value? That’s right: even fiat money isn’t backed by gold, but by trust in the government issuing it. So there.
Of course, if you’re someone who’s smartly capitalized on volatility, you might already be a millionaire or even billionaire by now. With high risks come potential great awards. Which might even be the reason why you’re reading this.
Thing is: blockchain technology isn’t volatile per se. It has a multitude of applications and we’re fully expecting it to shake up our world within this and the next few decades. Need some examples? Well, what about securing medical records and sharing them with medical personnel anywhere in the world? Or keeping track of your festival’s visitors? Eliminating election fraud by guarantying transparency without compromising privacy? Tracking where the food on your plate comes from? Finding out if the merchandise you’d like to buy is counterfeit? Providing a complete record of providence for the diamond necklace you just bought as a gift to your sugar baby? Didn’t know blockchains are this cool, huh?
MYTH 4: Yeah, it’s safe. Honestly. Really. Seriously.
We’d love to state otherwise, but we’d be lying: blockchains can theoretically be hacked. Most of them are protected by a cryptographic hash algorithm called SHA-256, which was originally designed by the NSA (the National Security Agency of the USA), which means we’ll all in serious trouble if hackers manage to hack the algorithm. Generally, one can expect larger, public blockchains to be more secure than small blockchains, though.
There have been instances of high-profile thefts and scams. In most cases, either vulnerabilities in wallets, digital currency exchanges or other aspects of cryptocurrency space were targeted. However, investors can take measures to protect their holdings better – which means it’s always a good idea to learn about how to secure your crypto before starting to invest or trade. A little bit like making sure your actual physical wallet isn’t sticking out of your back pocket while walking through your city’s slum area (yes, you know your city probably has one).
One huge advantage is that cryptocurrencies can’t really be shut down by the government. They’re decentralized, which means whichever Big Brother is watching you can’t trigger a location and cause a shutdown. Luckily.
MYTH 5: Bitcoin is too big, it’ll never fail. Hail bitcoin!
We’d really really really love to all you this is true, but we’d be lying. You see, Bitcoin’s founder, Satoshi Nakamoto (pseudo), has opted for a disinflationary monetary policy (disinflation stands for the decrease of the rate of inflation: a slowdown in the increase of the general price level of goods or services). In this particular case, the rate of inflation will decrease exponentially until the year 2140, which is when all 21 million $BTC will have been released into circulation.
This move has provided Bitcoin with a level of scarcity that catalyzes value increase and that appeals to our inherent desire for rare objects. Don’t believe the latter statement holds true? Just ask your girlfriend if she would prefer a glass trinket over a ruby-studded necklace, or your boyfriend if he’s choose a Toyota Corolla over a Bugatti Divo. Sure, there’s way more factors that’ll influence his or her decision than mere scarcity, but still…
Now, new bitcoins are minted every 10 minutes as block rewards, which are at the very base of their cryptoeconomic design, providing monetary incentive – a return of investment for the resources required to mine the cryptocurrency in the first place. If bitcoin is to provide enough incentive to start or continue mining after 2140, the network probably will need to have permeated global society enough for its transaction value and its associated transaction fee volume to be high enough, so it’ll be able to sustain miner profitability. Alas, at the time of this writing, we don’t know if that’s going to be the case, which means Bitcoin as a cryptocurrency might still fail. More about that in – you guessed it – an upcoming article.
MYTH 6: Living outside of Nerdville? You should stay away from this.
Honestly? We think bitcoin and blockchain is as easy to understand as basic arithmetic. Just take some oranges or Lego blocks (Lego didn’t pay for the endorsement here – what’s up with you, Lego?) and try it! No, really. Try it. Get someone to sit down with you and add blocks on one end while explaining this shit to them.
Aaaanyway, there’s such a thing as the Fear of the Unknown. It’s what a lot of horror films bank on. Hell, most (extreme) right-wing parties use it to make people want to build walls to deter those vilified Others or get them ousted out of your country. Similarly, the average consumer doesn’t have a lot of understanding of blockchain or cryptocurrency and tends to shy away from it. However, as more and more companies, countries or institutions adopt blockchain tech, expect the general public to catch on and catch up. Maybe that’s even why you’re reading this newspaper. More power to you!
The code to create cryptocurrency might (blessedly) be extremely complex, the interfaces used to own, trade and invest in it have evolved massively over the last few years and have lowered the learning curve significantly. You might want to try out a demo in order to get acquainted with the procedure if you haven’t done so. It’s like playing a game, but one you’ll need to play with some restraint. If you’re the kind of guy or gal who wins big in a casino game and then goes to spend it all on poker or blackjack, you might want to up your level of self-discipline before starting to trade cyptocurrency.
MYTH 7: Coins = tokens. Or tokens = coins. Same thing.
Obviously, if it’s included here as a myth, that definitely means coins and tokens aren’t the same thing. You see, tokens are able to store complex levels of value, like fungibility, income, property and utility. Property can include things like intellectual property (like this newspaper’s name), company stock or real estate transactions and tokens can even capture commodities or loyalty points. They’re cool that way.
Coins or Initial Coin Offerings (ICOs) are single utility only: they act as simple value stores. As such, they’re used for monetary exchange or as payment methods for blockchain services. Bitcoin and Ethereum’s Ether are prime examples, as each digital coin has its own blockchain attached.
Still confused? We’ll explain this in-length in an upcoming issue. Which gives you a reason to subscribe, right? Yeah, we’re still salesmen in that way. Also, remember the page limit. Hands tied and all that, sorry!
MYTH 8: Blockchains live up in the heavens.
A widespread myth states that blockchains are cloud-based databases. They’re not. Blockchains need to be downloaded and run on computers connected to the internet around the world. Computers are called ‘nodes’ and the more of those running with good web integration, the stronger whatever blockchain network they’re supporting becomes. Blockchains don’t store digital files (such as your baby pictures, invoices or porn), but store codes that provide ‘proof-of-existence’.
MYTH 9: Only High Programmers are able to develop their own blockchains.
First off: kudos to all tabletop roleplayers out there who recognize the term ‘High Programmers’. If you don’t know what we’re talking about, Google it. Buy the game. Again, no ad money received for the plug, just shameless self-indulgence (still, if you’re reading this, Mongoose: our bank account details are available upon demand).
More to the point, the original Bitcoin protocol is open source, which means anyone can modify its code. That’s what ‘forking’ is – which also means our lesbian friends have lost exclusive rights to the term. Currently, there are more than 1,514 cryptocurrencies listed on CoinMarketCap and all of them are variations of bitcoin.
Now, on to the myth. For quite some time, it wasn’t a misconception, but the god’s honest truth. However, a website like Forkgen.tech allows anyone to fork the bitcoin blockchain and create his or her own cryptocurrency. This journalist is seriously considering DirkChain. Just because.
MYTH 10: All crypto uses blockchain technology.
In short: no. In fact, some cryptocurrencies don’t use blockchains at all. IOTA, for example, maintains a directed acyclic graph – or ‘Tangle’ – to provide the necessary security for it to work as a currency.