Top 5 Common Misconceptions About Cryptocurrency
Cryptocurrency has been around for over a decade yet there are still a lot of misconceptions surrounding it both as a concept and an industry. These erroneous stereotypes have continued to follow the crypto community and even scared off individuals and companies.
TABLE OF CONTENTS:
- Introduction
- Five Common Misconceptions About Cryptocurrency
- Final Word
- FAQs
Cryptocurrency has been around for over a decade yet there are still a lot of misconceptions surrounding it both as a concept and an industry. These erroneous stereotypes have continued to follow the crypto community and even scared off individuals and companies that may have wanted to invest in Bitcoin or Altcoins such as Ethereum, Litecoin, Dogecoin (DOGE), Wakanda Inu (WKD), Binance Coin (BNB), Solana (SOL) and so on.
With this in mind, let’s get right into clearing and correcting some myths and misconceptions surrounding cryptocurrency.
Five Common Misconceptions About Cryptocurrency
1. Cryptocurrencies are a Ponzi Scheme and a Scam:
It is understandable to be wary about new ventures, especially ones that involve financial investments. However, investing in crypto is not a scam or Ponzi scheme. These digital currencies are built using Blockchain technology, which offers a significant layer of transparency to all of its dealings. Hence, if any of the platforms or companies you are using to trade coins does not show up on a basic Google search, it is likely a sham out to extort your money.
Josephine Inika
Much like everything else, crypto trading comes with risks. The same way you can be scammed with fiat currencies is the same way you can be swindled with digital currencies. Just as you would do some research before going into conventional investments like bonds and stocks, do the same for cryptocurrency. You can start here with our article on different crypto terms and crypto assets to invest in.
2. Cryptocurrency is Anonymous:
When Bitcoin first landed on the fintech scene, it was regarded as an anonymous financial exchange medium that was untraceable and unhackable. However, as the years have gone by, it has been found that this isn’t quite the truth; not just with Bitcoin, but with other Altcoins as well.
Cryptocurrency wallets are typically pseudonymous rather than anonymous – which means the wallet attaches an identity to your wallet. This identity is usually in the form of a string of scrambled letters and numbers. Even though real names are not attached to cryptocurrency addresses, the transactions can be traced to real people.
Moreover, Bitcoin and other Altcoins work using a blockchain ledger where anyone can see the transactions carried out by just about any wallet. Similarly, buying Bitcoin or exchanging it for fiat/traditional currency requires proof of identity like a driver’s license or passport to be successfully completed. With all of this, it’s safe to say the claim of anonymity stamped on crypto holds less water than it is believed to.
3. Cryptocurrency is Unregulated:
Contrary to public opinion in some sectors, the cryptocurrency industry is not allowed to just run free doing what it wants without checks and balances. There are different regulations for cryptocurrency in different countries.
For instance, in the United States, crypto exchanges are under the Bank Secrecy Act and have to register with the Financial Crimes Enforcement Network, comply with anti-money laundering laws, and combat financing terrorism obligations. The United Kingdom views cryptocurrency as property to be registered under the Financial Conduct Authority.
While investors have to pay capital gains tax for trading profits obtained from crypto, general taxability depends on who and what kind of crypto transactions are carried out. Other countries with regulations on crypto include Japan, Australia, India, and Canada. Hopefully, as more understanding of the value of digital currencies spreads, more countries will follow suit.
4. Cryptocurrency is Illegal:
Most countries have not explicitly declared cryptocurrency as legal tender. Instead, they have opted to place regulations on the transactions carried out with these digital coins and have placed taxations on their use as well. Countries such as Australia, Canada, the US, the UK, and the European Union are on the list of crypto-friendly nations. So far, El Salvador is the only country that recognises a cryptocurrency –Bitcoin– as a legal tender.
Josephine Inika
On the other hand, countries such as China, Russia, and Vietnam have either outrightly banned Cryptocurrency or declared its use as payment for goods and services as illegal. In Nigeria, CBN, which serves as the main financial regulatory body declared the use of cryptocurrencies as contrary to the existing law that states it as the “statutory issuer of legal tender in Nigeria”. In simple terms, crypto trading is frowned upon but hasn’t been explicitly banned as the SEC and CBN are supposedly working on a regulatory framework for digital currencies.
5. Cryptocurrencies are Mainly Used for Criminal Purposes:
This particular misconception dates as far back as when Bitcoin became popular in black markets on the dark web like Silk Road, where drug transactions and money laundering were carried out with this digital coin.
While it is true that cyber criminals and nefarious individuals have exploited the pseudonymity or semi-anonymity of cryptocurrency to facilitate their illicit dealings, it is not reasonable to label these digital coins as the mascot of online crime.
Rosemary Kasiobi Nwadike
After all, traditional/fiat currency is a medium of exchange used by criminals as well. What this all means is that it is not Bitcoin or Ethereum or other altcoins that make the transactions criminal but the users. It is a classic case of “hate the messenger, not the message”. Moreover, research has shown that the use of Bitcoin for nefarious dealings has dropped over the years.
Final Word
The cryptocurrency community and industry have seen a consistent rise in popularity and investments in the past decade. Still, with all the information in this field flying around, it can be hard to tell the truth from myth, and rumour from fact.
Let us know in the comment section what misconceptions you held before reading this article and if we missed out on any other crypto myths!
FAQs
Q1. What is cryptocurrency?
A1. Cryptocurrency is a type of digital or virtual money that uses cryptography for security. Unlike traditional money issued by governments (like dollars or euros), cryptocurrencies operate on a technology called blockchain and are usually decentralised.
Q2. Is cryptocurrency only used by criminals?
A2. No, most people use cryptocurrency for legal activities. While some criminals have used it, just like any form of money, most transactions are legitimate. Cryptocurrencies are used for investments, online purchases, and international money transfers.
Q3. Is cryptocurrency completely anonymous?
A3. Not really. Most cryptocurrencies are pseudonymous, meaning transactions are linked to a unique address rather than a person's real name. However, these addresses can sometimes be traced back to individuals through various methods.
Q4. Are cryptocurrencies a scam or a Ponzi scheme?
A4. No, cryptocurrencies themselves are not scams. They are a new type of technology. However, there are some scams and fraudulent schemes involving cryptocurrencies, just like with any other type of investment. It’s important to do your research and be cautious.
Q5. Is investing in cryptocurrency a sure way to get rich quickly?
A5. No, investing in cryptocurrency is not a guaranteed way to get rich. Cryptocurrencies can be very volatile, meaning their prices can go up and down quickly. While some people have made money, others have lost money. It’s important to understand the risks before investing.
Q6. Are cryptocurrencies useless and have no real-world applications?
A6. Cryptocurrencies have many real-world applications. They can be used for online shopping, remittances (sending money to another country), and even as a way to raise funds for projects (via Initial Coin Offerings or ICOs). Some companies also accept cryptocurrency as a form of payment.
Q7. Is cryptocurrency too complicated for the average person to understand?
A7. While the technology behind cryptocurrencies can be complex, using them is becoming easier. Many platforms and apps simplify buying, selling, and using cryptocurrencies.
Q8. Will cryptocurrency replace traditional money?
A8. It’s unlikely that cryptocurrencies will completely replace traditional money soon. However, they might coexist alongside traditional currencies and offer an alternative for certain types of transactions.
Q9. Are all cryptocurrencies the same?
A9. No, there are thousands of different cryptocurrencies, each with its own features and uses. Bitcoin is the most well-known, but there are many others like Ethereum, Ripple, and Litecoin, each serving different purposes.
Q10. Is cryptocurrency legal?
A10. The legality of cryptocurrency varies by country. In many places, it is legal to buy, sell, and use cryptocurrencies, but some countries have restrictions or bans. It’s important to know the laws in your country before getting involved in cryptocurrency.
Disclaimer: This article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive article and should not be taken as financial advice. Obiex will not be held liable for your investment decisions.
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