- Around cryptocurrencies there are many myths that contribute to the misinformation of users.
- Breaking these myths help the ecosystem grow and improve confidence in the industry.
As the cryptocurrency industry develops, the number of misconceptions people have about cryptocurrencies and Blockchain technology is reduced. However, still, In the world there are a variety of myths associated with the industry that are a consequence of the lack of information.
But why is it important to know what are the myths about the blockchain and cryptocurrencies? Why is it essential to deny them?
The answer lies in that, As more people truly understand the technology, it will potentially increase innovation, adoption while also decreasing the likelihood of people falling for digital currency scams or other projects. That’s why today let’s talk about the most common myths of people about cryptocurrencies
Myth 1
All digital currencies are exactly the same
At the time of writing, the crypto market capitalization is $809.9 billion US according to data from CoinMarketCap. Bitcoin has a market capitalization equivalent to $323.94 billion US dollars. Bitcoin being the largest currency, it only occupies approximately 40% of the market.
Why would there be 60% of the cryptocurrency market using another currency than Bitcoin if, according to the myth, they are all the same?
The term “cryptocurrency” describes a variety of currencies, systems and networks; each with a different problem, purpose and structure.
Yes, Bitcoin is the first cryptocurrency to emerge and has therefore been around the longest, however, The crypto ecosystem has expanded and, with it, new projects have been born that seek to solve problems different from those that Bitcoin sought to solve when it was born.
In fact, what happens in the cryptocurrency market is similar to any other traditional market. Over time, new companies or organizations have emerged that seek to innovate and offer a solution to a certain problem with their digital currency. To be successful, every cryptocurrency project must solve a problem that needs to be solved.
For example, hestable coins are designed to provide a bridge between the traditional world and the crypto ecosystem by linking a token to US dollar or other fiat currency. Whereas, on the contrary, Ethereum was created to provide a decentralized ecosystem in which NFTs and smart contracts were born.
Consequently, when it comes to making an investment decision, users should do the same as they would when it comes to investing in a traditional company. Investigate! Especially when you consider that the crypto ecosystem is still a poorly regulated market.
Myth 2
Blockchain equals cryptocurrency
Yes, the blockchain was first introduced as part of the Bitcoin proposal in 2008, however, in 1982, David Chaum, a cryptographer, proposed a blockchain-like protocol.
Later, in 1991, Stuart Haber and W. Scott Stornetta also described a cryptographically secured blockchain because they wanted to implement a system in which document timestamps could not be altered.
In 1992, Haber, Stornetta, and Dave Bayer incorporated the Merkle Tree into the design, improving the efficiency of the technology for collecting the information.
What Satoshi Nakamoto did was offer the first blockchain in 2008 as the basis for the creation of Bitcoin, however, blockchain technology can be used in sectors other than cryptocurrencies. And it is that, although they go well together, they can shine one without the other.
Myth 3
Digital currencies are only used to make an illicit transaction
Yes, cryptocurrencies can be used for illegal purposes. however, also fiat money.
According to a report From Chainalysis, in 2021 cryptocurrency transactions related to illicit activities were reduced in 2021 to 0.15% of all transactions carried out in the market.
In fact, an interesting fact, which is associated with another very common myth about cryptocurrencies, is that not all cryptos are anonymous. For example, Bitcoin is fully traceable.
Consequently, Criminals don’t really have an incentive to use Bitcoin for illegal activities because authorities can actually track transactions and even figure out the identity of the criminal.
in a report published The United States Department of the Treasury establishes that fiat currencies continue to be the preferred means for criminals to execute financial crimes.
Myth 3
Cryptocurrencies make millionaires in the blink of an eye
Especially during bullish phases of the crypto market, the idea spreads that cryptocurrencies offer a one-way street to wealth. This idea is completely wrong.
Yes, cryptocurrencies, like any other type of investment, have been the means through which some people have been able to earn significant amounts of money. However, there is no rule that says that everyone will become a millionaire.
In general, making money with cryptocurrencies depends on many factors; among them the potential of the project and make informed and appropriate investment decisions.
In additionpeople need to understand that cryptocurrency mining is not a fast and guaranteed way to make money. Let’s start by pointing out that mining equipment is incredibly expensive as well as high electricity consumption translates into high production costs. This makes the margin of mining activity volatile and, under some considerations, relatively low.
Myth 4
All stablecoins are backed by US dollars or other fiat currencies
Many stablecoin myths were debunked this year, especially with the collapse of Terra USD.
The reality is thato All stablecoins are backed 1:1 with fiat currencies, some are backed by gold or other commodities while others by an algorithm.
Terra USD was precisely a stablecoin that maintained its price stability through algorithms that reduce or increase supply according to demand to maintain balance. And, clearly, it is not a bulletproof method.
Also, care should be taken with which stablecoins you trust. It is necessary to make sure that the company behind the Stablecoin has published demonstrations of the support of the asset in currencies.
Myth 5
The blockchain is 100% secure
It is often thought that a blockchain has to be, just because, completely secure. However, this is completely far from reality.
The blockchain creates a secure database that is distributed among a multitude of users and is therefore decentralized, however this does not mean that it cannot be attacked.
There are methods through which attackers can influence the blockchain verification process, and there is always human error. In the end, the human being is the one who interacts with the blockchain and, consequently, can make several mistakes that lead to the loss of money.
For example, people may fall victim to phishing attacks and thus hand over the keys to their cryptocurrency wallets, or they may even misunderstand cryptocurrency platforms and make mistakes.
It is necessary to remember that cryptocurrency transactions are not reversible. For example, if your credit card is stolen and charges are made, you can call the bank and ask that your money be returned. This is not possible when it comes to cryptocurrencies, and for that reason, it is essential that people understand how the technology works and know how to differentiate the myths from the truths.
Myth 6
All agents are trustworthy
This myth refers to the human need to believe that all agents are trustworthy. The reality is that no. The crypto ecosystem is still in full swing and consequently still has many weaknesses.
Not all cryptocurrencies are safe. Not all centralized cryptocurrency exchanges are secure and regulated. Not all decentralized projects are secure. Not all smart contracts are secure.
Anyone who decides to enter the cryptocurrency market has a responsibility to educate themselves and understand the risks they face.
This does not mean that the ecosystem is bad. It means that, like other markets, there are risks that users have to take. Again the problem is not in the technology, but in who uses it.
Myth 7
Centralized crypto exchanges are not good
With the collapse of FTX, the idea has spread that centralized crypto exchanges are useless or problematic. Reality is not black or white.
Centralized crypto exchanges such as Binance offer a bridge between the traditional financial market and cryptocurrencies. Likewise, they offer a very important service, especially for those who are starting out, and it is the custody of assets.
These types of platforms offer a service very similar to that of traditional banks: They safeguard your money. Obviously, using this type of platform implies that the user must trust how their money is protected. The beauty of cryptocurrencies is that it allows the user to take care of the assets themselves, but this implies a certain degree of knowledge and responsibility.
Centralized crypto exchanges should be used for what they are: to maintain liquidity in an amount of assets that you are willing to lose in the event of a crisis. This does not make them good or bad.
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