information Seven misconceptions about Bitcoin

[kyoukage01 3181]

Quite a lot of information about Bitcoin has circulated on the internet over the years. And not all of those information are entirely true: some false information stem from a combination of ignorance, misinterpretation, willful misdirection, etc. from both promoters and detractors of the cryptocurrency. AFAIK, mostly from the detractors anyway.

 

So with the growing exposure of Bitcoin, an article was made clarifying some of the most common misinformation on it. I suggest you read it especially if you're a beginner: the article below couldn't have explained it better.

 

Spoiler

Busting Bitcoin myths: 7 misconceptions about the cryptocurrency

By Alex Tapscott

 

Bitcoin’s recent surge has reawakened old animus in the media. “The trouble with Bitcoin: Why the crypto craze can’t last,” read a recent headline in the Globe and Mail, a Canadian newspaper. 

 

To be sure, Bitcoin can be polarizing. Bitcoin diehards claim the cryptocurrency will soon replace gold, all government-backed money, and credit cards, as well as turn the banking system on its head. Rational exuberance aside, that is unlikely to happen, at least in the short term. On the flip side, media critics often badly mischaracterize Bitcoin as nothing more than a speculative tool, an environmental disaster, a bubble, or worse. 

 

This makes an honest, sober analysis of the facts by an investor almost impossible, which is a shame. As a new asset class, investors must do their homework on Bitcoin and carefully consider the risks before jumping in. 

 

So in that spirit, it’s high time to fact-check a few common Bitcoin misconceptions: 

#1: Bitcoin is used only for speculation

This is not accurate. Every day, the Bitcoin network settles approximately $10 billion worth of transactions. Bitcoin’s average of 305,000 daily transactions is not far behind Fedwire, the Federal Reserve’s settlement system for wire transfers between financial institutions, at 550,000 transactions.

 

Some of these transactions represent investment purchases, and some of those may be for speculation, but many others are for regular use like remittances, especially in the global South. For example, according to the World Economic Forum, 32% of Nigerians own Bitcoin for peer-to-peer payments. In regimes like Russia and Belarus, Bitcoin is sometimes the only way to fund anti-corruption efforts and protests. That’s pretty useful.

#2: Bitcoin wastes energy

Bitcoin “miners” harness vast computing power to secure the Bitcoin network. Those computers use a lot of energy: by some estimates as much as the country of Chile. This has led to charges of energy waste. 

 

Something “wastes” energy only to those who think it serves no useful function. The Bitcoin network secures $1 trillion in value, and serves millions of people, including many without access to traditional payment networks. Miners often colocate to where power is abundant and free, which often means renewable hydroelectric or geothermal sources. Today at least 39% of Bitcoin mining is powered by renewable energy, and that share is growing rapidly. It also takes a lot of energy to run FedEx, TikTok, and the U.S. Department of Defense. Bitcoin’s carbon footprint is undoubtedly a problem that requires a solution. But it doesn’t mean Bitcoin is a bad idea. Rather, that carbon footprint is an implementation challenge to overcome—just as it is for all kinds of useful entities.

#3: Bitcoin is too volatile to be a store of value

While it’s true that Bitcoin is more volatile than, say, government bonds, that’s not inherently bad. In the 1970s, as gold was severed formally from the monetary system, its price was extremely volatile, increasing 10-fold in a decade, before declining 60% and flatlining for decades. Gold was at its most volatile as it was increasing in value. Sometimes the most volatile assets have the best returns, and sometimes they do not. Bitcoin today is in a “price discovery” phase similar to where gold was in the 1970s, where big swings up and down can be common. Still, because of its volatility, Bitcoin may not be suitable for all investors.

#4: Governments will kill Bitcoin

It’s true that in Nigeria, Russia, and Belarus, Bitcoin gets the government’s cold shoulder. But in the U.S., Canada, and much of the West, the situation is different. For example, the top U.S. securities regulator taught a course on cryptocurrencies at MIT; the Commodity Futures Trading Commission, which regulates commodity markets, is a global innovator in regulating Bitcoin derivatives; and the U.S. Office of the Comptroller of the Currency recently cleared banks to provide custody services for Bitcoin. Central banks care about financial stability above all else. Nothing would be more destabilizing to the $1 trillion Bitcoin market than some arbitrary and unwarranted crackdown.

#5: Other cryptocurrencies are dilutive to Bitcoin

Since Bitcoin went live in 2009, thousands of new cryptocurrencies have launched with no obvious impact on Bitcoin’s price. This makes sense. When we mine more tin from the earth, do we affect the supply of gold? No, because they are unrelated assets. A related critique is that Bitcoin’s total supply is not fixed, because Bitcoin is divisible into tiny increments. To understand why this is wrong, replace Bitcoin with pizza: If we take a pizza and cut it into a billion pieces, do we have more pizza, less pizza, or the same amount of pizza? We have the same, of course. 

#6: Central bank digital currencies (CBDCs) and corporate currencies will crush Bitcoin

Relying on governments to be technology innovators is very optimistic. While it’s true that many central banks have announced CBDC initiatives, few are beyond the proof-of-concept stage. The lone exception is in China, where the government is keen to launch its own digital money to gain greater oversight into spending in the country and extend its reach beyond its borders. That, if anything, is a boost to Bitcoin, as there are many who would prefer to stay out from under the watchful eye of the Communist Party. 

 

Corporate digital currencies (also known as stablecoins) will not threaten Bitcoin, either. In fact, they’ll likely do the opposite. The value of all stablecoins in circulation has skyrocketed 40x since 2017, but Bitcoin continues to thrive, as more users grow comfortable with digital assets.

#7: ‘Easy money’ is pushing Bitcoin into bubble territory

It’s true that all risk assets have benefited from easy interest-rate policy at the Bank of Canada, the Federal Reserve, and elsewhere. As bond yields have increased and fund flows have moved into more economically sensitive stocks of banks, energy companies, and so forth, some beneficiaries of low rates, including tech-sector high-fliers like Shopify, Zoom, and Peloton, have corrected 30% or more from their pandemic highs. Bitcoin may follow suit at some point, and of course investors would be wise to proceed with caution on any investment whose value has increased over 500% in less than a year, as Bitcoin’s has. That said, it’s worth noting that Bitcoin could benefit from a tightening of monetary policy, if it signals accelerating inflation, because many investors see Bitcoin as a hedge against rising consumer prices.

 

In my view, Bitcoin is certainly a catalyst of innovation and could become a key player in the future of our global financial system. Money, which has evolved through the millennia from cowrie shells to clay tablets to precious metals, bank notes, and bank balances, is taking another step into the future. Money is becoming digital. Buying Bitcoin could offer a way to get exposure to that future. However, Bitcoin’s success is not guaranteed, and it may not be a suitable investment for everyone. As with any new paradigm, there are risks and uncertainties. To understand Bitcoin, start with the facts.

source: https://fortune.com/2021/03/17/bitcoin-myths-bubble-miners-energy-waste-stablecoin/

 

Here are my own views on the article. The numbers below correspond to the numbering of the key points mentioned in it.

1. The opinion that Bitcoin is for speculation and not as a transaction tool might have stemmed from the well-known fact that the coin has some scalability issues. Until this issue is fully resolved, other coins will dominate Bitcoin on transaction speed and Bitcoin itself will remain more as a store of value.
2. The article mentioned that 39% of energy spent on Bitcoin comes from renewable energy. So what is the other 61%? If Bitcoin is to be 100% reliant on renewable energy, it better be done soon: Bitcoin mining havens like China (which still mainly use fossil fuels) is recently having a crackdown on miners due to energy consumption issues.
3. Volatility in Bitcoin can be actually good, IF you happen to aim long-term investments and Bitcoin maintains it price increase in the coming decades. Just make sure that your account and/or wallet information is secure, as there are now quite a lot of stories where people can no longer access their Bitcoin funds due to lost wallets, forgotten passwords or private keys, etc.
4. Governments will change their minds about Bitcoin and cryptocurrency in general sooner or later. 2021 is looking to be a good year for wider adoption of cryptocurrencies, with major companies like Tesla, Paypal, JPMorgan, etc. doing business with crypto in one form or another.
5. Where did I read this line: "People buy and trade in altcoins so that they can buy more Bitcoin🙂"? As long as this view is common among crypto enthusiasts, the misinformation about altcoins closely tied to Bitcoin and will never become fully independent will remain.
6. What I find about CBDCs is that they offer very little in terms of what cryptocurrencies have to offer, which is a degree of independence from governments and institutions. The major reason: these government-sponsored digital currencies are still closely tied to its country of origin. As a result, any political stances, moves, and intents of a government that owns a CBDC will adversely affect its adoption and price.
7. This argument about Bitcoin bubble might have hold water back in 2017-2018. But maybe not today, as more companies are getting involved with cryptocurrencies as I have mentioned. Those companies are not ignorant either. They knew what happened to the 2017 bubble but are now investing in cryptocurrencies anyway. And that is something to watch out for.

 

What is your view on the article? Post your comments below.

 

Edited March 18, 2021 by kyoukage01

[Whited35 15285]

On 3/18/2021 at 12:31 PM, kyoukage01 said:

The article mentioned that 39% of energy spent on Bitcoin comes from renewable energy. So what is the other 61%? If Bitcoin is to be 100% reliant on renewable energy, it better be done soon: Bitcoin mining havens like China (which still mainly use fossil fuels) is recently having a crackdown on miners due to energy consumption issues

Indeed, the disputable energy consumption is the core demerits of Bitcoin mining, all Bitcoin will be mined based on this PoW protocol no matter how difficult is it because I have not seen any remarkable possibilities to make the protocol change like Ethereum is doing. So despite the several misconceptions to represent it as a bubble due to PoW protocol, it could be still used as a hedge against the inflation by so many sectors  😀. 

On 3/18/2021 at 12:31 PM, kyoukage01 said:

Just make sure that your account and/or wallet information is secure, as there are now quite a lot of stories where people can no longer access their Bitcoin funds due to lost wallets, forgotten passwords or private keys, etc.

Not the counter-comment but this line is admirable so I am backing it with a strong support 😜. Fixed supply of Bitcoin is inspiring to increase its value in future as it is not something like US dollars to get price effected once banknotes are produced to increase the supply. Despite being the volatile asset, its price can be growing up and at least the past situations are directing us to get the clues. 

[kryptonick 2659]

On 3/18/2021 at 8:46 AM, kyoukage01 said:

This argument about Bitcoin bubble might have hold water back in 2017-2018. But maybe not today, as more companies are getting involved with cryptocurrencies as I have mentioned. Those companies are not ignorant either. They knew what happened to the 2017 bubble but are now investing in cryptocurrencies anyway. And that is something to watch out for.

While I agree with everything else, I disagree with this part.

These companies are ignorant and while Saylor is just the typical run of the mill speculator and Vegas degenerate gambler, Musk is looking like he just got where he is today by pure luck. It seems like bigger interests put him in a management position and just let him run loose. I don't see any high intelligence in him as he is advertised to have, and in fact I see in Musk a Dogecoin, a meme, someone that is spamming twitter to gain more followers. Their companies and the stock holders will pay if they keep holding.

Edited April 16, 2021 by kryptonick

[kyoukage01 3181]

On 4/17/2021 at 4:23 AM, kryptonick said:

While I agree with everything else, I disagree with this part.

These companies are ignorant and while Saylor is just the typical run of the mill speculator and Vegas degenerate gambler, Musk is looking like he just got where he is today by pure luck. It seems like bigger interests put him in a management position and just let him run loose. I don't see any high intelligence in him as he is advertised to have, and in fact I see in Musk a Dogecoin, a meme, someone that is spamming twitter to gain more followers. Their companies and the stock holders will pay if they keep holding.

I referred to the companies as a collective of people whose current policies on crypto was decided by a majority of its executives, not as something that blindly follows the whims of a single individual (or at least that's what I see anyway). Whatever Musk or Saylor or anybody else post on their tweets is only their personal opinion and usually has nothing to do with the policies of their affiliated companies. Thank you for that comment anyway.

 

BTW, is this Saylor's profile on Twitter?

https://twitter.com/michael_saylor

Because from what I've read in some of his past tweets, this guy has previously been a hater of Bitcoin before he got converted to being a crypto fanatic for some reason. Maybe because he took the time studying what crypto really is before he put his reputation on the line becoming a self-proclaimed champion of crypto?

 

[kryptonick 2659]

On 4/19/2021 at 5:40 AM, kyoukage01 said:

BTW, is this Saylor's profile on Twitter?

https://twitter.com/michael_saylor

Yes, this is him. I don't know the posts that were negative, but if there are any there are people that will find them. I understand your point, but these companies are just these two people. I don't understand how protectionist the US system is on these executives but it seems they have a lot of power and they take decisions.

Moreover it seems that Musk sold 10% of the Bitcoins bought for Tesla. We will see.