Top 3 myths about Bitcoin debunked
The truth behind the cryptocurrency's most common misconceptions
There are some common misconceptions and myths surrounding cryptocurrencies and this new financial system. We’ve debunked the top three:
1. You have to buy a whole Bitcoin
Truth: No, you don't have to buy a whole Bitcoin. You can buy smaller units.
With the price of Bitcoin ranging around the $6,000 (about R89,500) mark this year, it can feel expensive to get started. With so much emphasis placed on the value of one Bitcoin across the industry, it's understandable how newcomers often mistakenly assume they need to afford an entire Bitcoin to participate.
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Like pizza, you can buy one slice or two, or a pizza as a whole, depending on your appetite.
Similarly, all local currencies break down into parts, like cents. Bitcoin breaks down into smaller units all the way to eight decimal places: 0.00000001 BTC. The smallest possible fraction is known as a satoshi, after the creator of Bitcoin. There are 100-million satoshis in one Bitcoin.
Small investments can be a sensible approach to investing in cryptocurrency. Before you start, it's important to learn how the technology works and become more comfortable with it. You should never invest more than you can afford to lose.
2. Bitcoin is used for illegal activities (like drug dealing) because it’s anonymous
Truth: Contrary to popular belief, Bitcoin is not anonymous.
It’s pseudo-anonymous. This means that all transactions are recorded on the public blockchain, along with the addresses of the wallets involved. Although no identifying personal details are included on the blockchain ledger, if you figure out who owns a particular wallet, you then know they were responsible for all transactions from that address.
So is Bitcoin used by criminals? Law enforcement is getting better at tracing transactions and figuring out who an address belongs to. So Bitcoin is a terrible choice for carrying out anything illegal. If you’re caught, your entire history is available.
People have always found a way to carry out illegal activities, long before Bitcoin existed. Maybe they always will. In any case, it’s far easier to trace than cash. Bitcoin now has numerous legitimate uses and its use by criminals has shrunk dramatically.
3. Bitcoin has been (or will be) hacked - it’s not safe
Truth: Bitcoin itself has never been hacked and probably never will be.
Some exchanges, wallet providers and other cryptocurrency-related companies have had their security compromised. Most of these hacks, if not all, have been the result of preventable security lapses.
As with any new technology, it has taken time for everyone to figure out the best options for security and to learn from their mistakes.
A reputable wallet provider will take every possible step to meet the highest security standards and prevent hacks, in addition to looking after your private keys.
You should also take extra precautions, like turning on two-factor authentication and using strong passwords. The same precautions apply to any other store of value and there are always going to be risks. Bitcoin has some security advantages, provided you make use of them.
Beyond these big three misconceptions, there are many more. The easiest way to debunk them is to do your research and learn about this innovative technology. For more resources, visit the Learning Portal.
Want to learn more? Read Luno's Bitcoin education series here.
This article was paid for by Luno.