Since late 2017, digital currencies (well mostly Bitcoin!), burst into the public spotlight. Mainstream news outlets were reporting unfathomable investment returns – from $0.0008 to $0.08 in 2010, and then in early 2018, $19,000. To be honest, it was certainly worthy of reporting. However, this sudden boom in interest and a new generation of buyers didn’t correlate with the public’s understanding of what exactly they were buying, or what Bitcoin did or why it indeed gained 720,00,0000% in 9 years.
Thus, with this unprecedented influx of interest in an unknown asset class, only a few wanted to understand the technology and reason for the fluctuation behind it, and the rest just invest. Thus, there was an enormous amount of disinformation, mistruths and rumours propagated amongst media and social circles.
Here we look at the top 7 myths attributed to Bitcoin.
1. Bitcoin funds drug dealers, terrorists, illicit trade of endangered animals and insert anything illegal here.
Well, if we’re fair, this isn’t a myth, it’s true. However, it’s as true as saying the US dollar or the Euro is responsible for the same. Any financial instrument can and will be used to facilitate illegal activity on a global scale, so why has Bitcoin been associated so strongly with it? Well two main reasons. Firstly, the ‘anonymity’ of Bitcoin. Ironically, this is actually one of it’s strengths, and simultaneously seems to bypass the notion that fiat currency can also be transferred anonymously. However, it is certainly true, that the anonymity of Bitcoin transactions has spurred many illegal sites to take advantage of it, most notably ‘dark web’ sites dealing in illegal assets. So is in fact this a myth? Well yes. And the reason is this: the transactions made using bitcoin have and can certainly be illegal (as with any currency), but Bitcoin itself? Of course not, it’s merely a store of value. And the research out there to compare both fiat currency to Bitcoin in terms of illegal transactions is so sparse (as would be the purpose of illicit trade!), that to hold only Bitcoin to this standard would be empirically unfair.
2. Bitcoin is bad for the environment.
Yes, it does sound rather silly when you know Bitcoin to be a digital currency, using an already in-place digital network. The myth stems from the use of mining. Mining is, in simple terms, a vast amount of electricity used by ‘miners’ in order to create blocks on the blockchain. This is referred to as ‘Bitcoin’s carbon footprint’, and is argued that its huge amount of energy use damages the environment. The trouble is, the data to support this, is not only sparse but outdated. In fact, a recent study in the Environmental Science & Technology journal, asserted that the entire Bitcoin Network ‘consumed 31.3 Terawatt-hours of electricity and generated 17.3 megatons of carbon dioxide equivalents in 2018’. This was just over 50% less than previous estimates. Moreover, and perhaps more importantly, the environmental damage from this mining, was not the production of blocks itself, but in fact the choice of mining equipment, with detrimental damage depending on location and hardware. So as with illicit activities, it’s not Bitcoin itself to blame, but the choices made in how it’s utilised.
3. Bitcoin was created by a ‘Satoshi Nakamoto’
In 2008, an author named Sataoshi Nakamoto sent an academic paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”, to a cryptography mailing list.
Now, while no-one can ever 100% say this paper wasn’t written by one person with said name, it was most likely a pseudonym at the very least, Nevertheless, a hunt for Nakamoto-san took place in 2014, when Newsweek believed they had tracked down a Satoshi Nakamoto, a retired engineer living in California, and unveiled ‘Bitcoin’s Face: Mystery Man behind the Crypto-Currency’. It wasn’t long before the article and research was discredited and seen to have no concrete proof. So what other evidence is there to suggest this wasn’t a single Japanese man? Well, circumstantial most of it, but it’s still compelling. First of all, the code commenting was not only in pure native English, but also used Commonwealth colloquialisms such as ‘bloody hard’ and ‘maths’. Swiss coder Stefan Thomas also documented all Nakamoto’s posts on a forum over 3 years and showed his time of activity was not that of Japan. Dan Kaminsky, a prominent security researcher, also claimed it near impossible for the code to be written by one man, and must have been a team, and Laszlo Hanyecz, who was in contact with Nakamoto, backs this assertion up, claiming the code was far too difficult for one man. However, as said, these are indeed circumstantial reasons, and can’t completely disprove it wasn’t a 37 year old Japanese genius up at strange hours, but it does remain highly unlikely.
4. Bitcoin is “slow”
This misconception stems from the misunderstanding between a ‘throughput layer’ and a ‘settlement layer’. Bitcoin transactions should indeed have a delay, as they are reaching an agreement (known as a consensus) on the state of transactions within an enormous decentralised digital network where no-one knows each other. No other fiat currency does that. So to compare speed here is apples and oranges. In fact, these delays are actually a feature and not a bug. Moreover, they are indeed strengthening the value and security of Bitcoin, as the more time this flawless record continues, the safer it will be seen. So quite simply, this ‘slow’ design deliberate. In fact, this layer of agreement, the settlement layer is the fastest on the planet, and if you look beyond that, ask yourself, how fast could you transfer $1,000,000 from Egypt to Australia on a national holiday using our banking system?
5. Bitcoin is Anonymous
OK. This one is a little sneaky, but a myth nonetheless. You may have noticed the use of anonymity in quotes when discussing illegal transactions. That’s because this is simply a terminology mistake. When people use the word anonymous with Bitcoin, they are referring to not knowing the name of the person sending the money. This is true, but is in fact called ‘pseudonymous’. As far as anonymity is concerned it’s everything but. Actually, it couldn’t be less anonymous! Bitcoin floats on an open, public ledger, and anyone can query or look at this. So your public key will always be available, and if there is nothing linking that to your name, then you can remain pseudonymous, but do acknowledge the difference in terms.
6. Bitcoin is “backed by nothing”
Well, wrong. Simply, Bitcoin is backed my mathematics, decentralisation and censorship resistance. It’s just the latest and more technical iteration or evolution of money. And money is merely a shared idea unique to us that has moved from bartering shells, to shiny things, to metals, silver, gold, coins, gold-coated paper, fiat paper money, and then digital numbers in a bank’s database. It’s as backed as much as any currency before it. The only difference is that fiat money is ‘supported’ on the promise of a bank or government, transactions susceptible to human error, an abundant ease to make mistakes (or not so genuine mistakes). And we have seen through history, that through incompetence on one side and corruption the other, that this is neither efficient or sustainable, and add on to external factors, variables and human emotion, it becomes more and more unreliable. And Bitcoin? Well a transaction is a transaction and everyone can see it!
7. Bitcoin is only for the tech-savvy and computer geeks
I understand. There are certainly a lot of technical terms, some just buzz-words, some with more substance. In fact, the jargon floating around has been multiplied as the technology has been highly adopted by social media which brings these terms to the layman, making it seem more inaccessible. Hash rates, private keys, halvenings, you can see how these may put off new people in the market. But if you take a step back, what financial structure is truly void of these? I’m positive the majority of Bitcoin holders would be overwhelmed looking into the intricacies of the stock market or even basic global economics.
The fact is though, using Bitcoin can be as easy as downloading something (a wallet), making a purchase with a credit card, and scanning or inputting an address. In fact, these steps are far fewer than those needed to set up a bank account, let alone arrange a transfer using your online-banking app. So no, bitcoin is as easy, if not easier, to use than fiat currency. And once business owners slowly start to look beyond the big words and find out how easy adoption is, the next big ride will certainly start.