Cryptocurrency is no longer new. To be honest it wasn’t new even a few years ago before cryptomania launched Bitcoin into the stratosphere.
Consequently, you might have thought that most of the cryptocurrency myths, misinformation, and flat-out wrong ideas that have orbited around crypto would have evaporated by now.
But no. Many still persist.
Perhaps this blog post will help to lay some of these myths to rest.
Myth 1: Crypto is not secure.
Blockchain technology has its tenth birthday this year in October if you measure its birth from the publication of Satoshi Nakamoto’s original paper. If you measure it from the release of the software, it occurs in January next year. Either way, the technology is nearly ten years old, is considered unbreakable (at least until quantum computers grow tall), and has never been successfully hacked.
The crypto-is-insecure lie is fake news formed from a chain of successful crypto-heists. Here are the most notable:
- Mt. Gox Version 1.0: In 2011, a hacker using an unidentifiable user account made off with 25,000 Bitcoin, worth half a million in those days, and much more now. (Wallet security is much improved since those days.)
- Silk Road, The Sequel: The feds closed the Silk Road in October 2013, and a doppelganger site appeared as if from nowhere. Sadly the security was not as good as the original. A hacker blew through it and cleaned it out to the tune of $2.7 million.
- The Sheep Marketplace: The Sheep Marketplace opened at the same time as Silk-Road-the-Sequel, surviving a little longer before a marauding hacker got his hands on some ill-gotten gains. This was an epic heist, 96,000 Bitcoins worth about $56.4 million and the hacker had the cheek to manipulate user account balances so that it looked like nothing had happened.
- Mt. Gox Version 2.0: After February 2014 when Mt. Gox finally shut its doors, 744,408 Bitcoin, worth $436 million) were missing. This hack had the added impact of crashing the price of Bitcoin.
- The Pony Botnet: A botnet using trojan malware called Pony stole vast numbers of login credentials from 700,000 accounts, 85 of which had Bitcoin wallets. The hacker emptied them to the tune of $220,000.
- The Demise of the DAO: The first smart contract on Ethereum was not so smart. It served the DAO (a Decentralized Autonomous Organization) and had a bug, The hacker who hacked it spirited away about $55 million. As a side effect, the Ether community forked the blockchain, but the crypto stayed stolen.
In every case, the crypto stayed stolen, but none of this can be blamed on a blockchain technology problem.
Myth 2. Cryptos are a scam, a shakedown — a Ponzi scheme, no less.
Ok, there have been many crypto-based fraudulent schemes. The most frequent and successful scam is the “Exit Scam”. It works like this:
- Dream up a crypto idea that sounds feasible and claim it will print mountains of money for investors.
- Create a website, complete with cool artwork, a well-written white paper, impressive-sounding advisers, and a product roadmap.
- Launch ICO.
- When ICO completes, take the money and run.
Here are some examples:
- Pincoin Token: A team of 7 Vietnamese entrepreneurs promised constant returns to investors. They launched an ICO and reaped $660 million from about 32,000 suckers. They even paid out a little to the investors before they did a moonlight flit. They have not been heard of since.
- Benebit: What do you think of this idea: let’s unify all customer loyalty programs? Brilliant, eh? Sorry, but it’s too late to invest. The ICO is over, and the company behind it has evaporated, along with an estimated $4 million — demonstrating a distinct lack of customer loyalty.
- PonziCoin: This earns itself a mention; barefaced branding at its best. It billed itself as “the world’s first legitimate Ponzi scheme”. It was a prank website. It even included a public admission that it was a scam. Amazingly this didn’t stop morons from pouring money into it. It raised over $250,000. What was the founder supposed to do? Naturally, cash in hand, he made a sharp exit.
A March 2018 study by the Satis Group, estimated that of all the large recent ICOs, a solid 81% were “frauds”, 6% failed, 5% are clinically dead, and only 8% made it to market.
Wait a minute. If that’s the case, how is this a Myth?
Terminological inexactitude, dear reader. It should have read: ICOs are frequently a scam, a shakedown — a Ponzi scheme, no less
That’s why the SEC has pretty much called a halt to US ICOs. The point is that ICOs, not fully functional cryptocurrencies, are dangerous investment vehicles.
Myth 3. Cryptos have no real value.
“Give me a break, Krugman,” he said, (imagining he was berating NYT columnist Paul Krugman) “dollars, euros, and quetzals have as little real value as Bitcoin or Ether. Their value is linked to diddly-squat.”
In contrast, there are more than a few cryptos that link to genuine gold. Here is a list of those currently being traded: AurumCoin, DigixGlobal, GoldMint, HelloGold, KaratBank, PureGold, Xaurum, AurusGold, and OneGram Coin.
There are also ten not-yet-fully-ICOed gold-based cryptos: GoldCrypto, Golden Currency, XGold Coin, GoldMineCoin, BaselBit, AgAu, Darico, Gold Bits Coin, Flashmoni, and Sudan Gold Coin.
And, if you want gold-backed money, where else are you going to get it?
Myth 4. Cryptos are for criminals and denizens of the dark web.
There are some advantages to using cryptocurrency for some criminal activities. It’s normal for hackers that spread ransomware to demand payment in Bitcoin. The now-defunct Silk Road did business in Bitcoin, selling drugs, medical supplies, and contraband. It meant that the money didn’t have to travel through a bank account — and for the bad guys that’s the most useful feature of Bitcoin.
In truth, Bitcoin is dominated by legitimate use. It is held as a pure investment, and as a safe store of money. Decentralization and “pseudo-anonymity” are features criminals like, but so do people living in economically unstable environments. If you cannot trust local banks because of corruption, or if the country you live in is unstable (think Venezuela) it’s a good place to store your stash of cash.
In the US, if you put your money in the bank and it fails, then you are insured (by FDIC) only up to a loss of $250,000. If you want to hold a larger amount then Bitcoin works fine. Bitcoin also sees heavy use on crypto exchanges as a unit of value to measure other crypto.
There is far more criminal use of the dollar: for money laundering, for drug trafficking, for bank robbery, and so on, than occurs with Bitcoin or any other cryptocurrency.
Myth 5. The use of crypto is anonymous.
Not so much. A computer security professional I know recently told me that the NSA had copied and analyzed the Bitcoin blockchain and was able to tie back almost all the Bitcoin wallets that exist to their owners. I have no idea whether this is true, but it would not surprise me — because it’s possible.
The point is that Bitcoin is an open ledger so you can tie the wallet addresses to amounts of Bitcoin. If you can tie the wallet address to an individual, you’ve got full knowledge of their holding, and their trades. And most ways to get Bitcoin, through an exchange of any kind, involves you providing identifying details.
You can get into bitcoin in anonymous ways, by buying it on the street through Local Bitcoin traders. There are also three coins; Dash, Monero, and Zcash that allow anonymous trading, so you could achieve anonymity through them. But they are the exception. The majority of crypto transactions are on the record.
Contrast this with paper money, such as dollar notes. These are truly untraceable, and hence they are far better than crypto for bad guys with money to hide.
Myth 6: The government is coming for your crypto.
Excuse me please, but no government has the power to shut down a cryptocurrency; blockchains are international and decentralized. Add in the fact that wealthy investors (the good, the bad, and the ugly) use store some of there stash in Bitcoin or Ether — and such people have political influence — and it’s game over, almost.
A government can make crypto illegal. And that’s what some economically-unsophisticated countries have done. When they do, it drives the currency underground and shops are not able to accept it.
Here’s a list of the economically-unsophisticated: Algeria, Bolivia, Ecuador, Bangladesh, Macedonia, Nepal. That’s just 6 out of 195, which is not bad for crypto. (Perhaps I should include Vietnam and Indonesia; both allow crypto speculation, but banned payments using crypto.)
Banning crypto will backfire spectacularly, stifling a whole sunrise industry until the sorry government finally realizes you can’t stop a technology tide.
As for the US, America is not going to ban crypto. No chance. Wall St is deeply in love again. And it’s the first time since it flashed its eyes at derivatives.
Myth 7: With crypto, you will pay no taxes.
Not exactly. Of course, politicians fantasize about banning crypto, even though they realize it’s a numbskull scheme. They fear crypto will deliver a simple means of skipping all taxes and the public purse will suddenly be empty. (Who then would pay their wages?)
The good news is that their fears may be well-founded. Crypto will probably provide ways to anonymize your money. The bad news is that our beloved politicians will quickly shift the burden of taxation to things that can be taxed, like everything you buy and stuff you cannot hide (land, property, yacht, etc.).
This tax switch will be disruptive, but it is inevitable whether you approve or not.
At the moment, the tax situation surrounding crypto varies. In most countries (including the US) crypto is treated as a commodity on which you pay capital gains tax if you speculate successfully. Blockchains are a public record, so where there’s a record of you putting money in, there is a record of your ownership. The taxman can know, and you risk his wrath if you try to hide your profits.
Myth 8: Can’t buy me much, yeah, everybody tells me so.
Some crypto-skeptics still believe crypto will never amount to much, although there are fewer than there were — culled perhaps, by the astronomic rise in crypto last year and Wall St obvious passion for its new financial mistress. Ripple in particular silenced many crypto-atheists when it announced that upwards of a hundred banks were using the Ripple network.
The crypto-skepticism transferred itself to the tokens that are not in the payments business. There are hundreds if not thousands of these. Some focus on computer infrastructure (the crypto cloud), some on the ad market, some on gaming, some on gambling, some on retail, some on the supply chain, and many on the health sector. Btw, my health sector favorite is Dentacoin. It makes me laugh just thinking about this crypto tooth-fairy.
I’ve always hated dentists, why would I ever buy their crypto?
The reason none of this seething mass of crypto tokens has made the news yet is that it’s too early. It will happen. Give it a year or two, and there will be dozens, or hundreds — maybe even bajillions.
Myth 9: Cryptos are a fad that will fade.
This myth is exploded by what’s written above and already lies in pieces. However, let me amplify it a little. I work for a crypto company (Algebraix). We began writing code in July 2017. We now have an application in Beta, and the Permission token (ticker: ASK) will be operational when the beta test is complete. The marketing campaign to recruit users will probably begin about a year after we started coding. The current roadmap runs for several years from then.
Now take a look at the history of, say, Facebook. In the first year after the software launched (2004), it acquired 1 million users. In the second year 5.5 million. It was not until the end of 2008 that it had 100 million and pretty much everyone knew its name. And Facebook is an example of very rapid growth.
The day has only just dawned. The flowers have yet to open.
Myth 10: Crypto is bad for the environment.
There is nothing worse in the eyes of a millennial than being utterly ungreen. Climate skeptics they are not, especially those who consult the evidence.
Thus a tremor ran through the crypto community when the news broke that Bitcoin mining squanders the electricity of 90 million refrigerators every day, or about as much as Ireland. It is excessive, even if you note that Bitcoin has a market cap of $160 bn — because that’s only half the GNP of Ireland and significantly less than Ireland’s money supply ($257 bn).
So shame on you Bitcoin.
We could protest: “Not so fast, Buster. If Bitcoin mining didn’t make a profit, no-one would do it.”
And that is also true. However, it doesn’t alter the fact that Bitcoin mining chews up huge amounts of electricity — necessitating the burning of vast amounts of fossil fuel — pushing unconscionable tons of carbon dioxide into the atmosphere — needlessly heating up the planet — melting the ice on Greenland and Antarctica, and raising the sea level to the point where Venice is unsavable. And I quite like Venice.
The truth is that the energy consumption of fiat currency is just as egregious and that the energy consumption of gold mining is more than twice as much and don’t talk to me about the cost of all those cloud data centers.
But that’s not the whole story. The whole crypto world knows that Bitcoin mining is expensive. So many other coins have found cheaper ways to organize their blockchains — ways that are hundreds of times cheaper than Bitcoin mining. (I’ll write an article on this one day soon).
Ultimately, either those other cryptos will dominate, or Bitcoin will become less of an electricity glutton.
The Net Net
You can think of this as a living blog post if you like. If you encounter any cryptocurrency myths which we do not mention above and which we have not yet slain, why not contact us and let us know.
If you do we will dispatch one of our mythbusters to hunt it down and dispatch it.