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 into 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
- 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 into crypto is not a scam or Ponzi scheme. These digital currencies are built using the Blockchain technology, which offers a significant layer of transparency to all of its dealings. Hence, if whatever platform or company you are using to trade coins cannot show up on a basic Google search, it is likely a sham out to extort your money.
Much like everything else, crypto trading comes with risk. The same way you can be scammed with fiat currency is the same way you can be swindled with digital currencies. Just as you would do 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 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 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 as well as comply with anti-money laundering and combating 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 spread, more countries will follow suit.
4. Cryptocurrency is illegal
Most countries have not come out to explicitly declare Cryptocurrency as legal tender. Instead, they have opted for placing regulations on the transactions carried out with these digital coins and have placed taxations on their use as well. Countries such as Australia, Canada, US, UK, and the European Union are among the list of crypto-friendly nations. So far, El Salvador is the only country that recognizes a cryptocurrency –Bitcoin– as legal tender.
On the other hand, countries such as China, Russia and Vietnam have either out rightly 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 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 to when Bitcoin became popular in black markets on the dark web like Silk road, where drug transactions and money laundering was 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.
After all, traditional/fiat currency is a medium of exchange used by criminals as well. What this all means is that it is not the 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.
The cryptocurrency community and industry has 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 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!
Disclaimer: this article was written by the writer to provide guidance and understanding of cryptocurrency trading. It is not an exhaustive list and should not be taken as financial advice. Obiex Finance will not be held liable for your investment decisions.