26 June 2020
Although blockchain and cryptocurrencies have gained popularity over the years, many people still find them confusing. The primary contributing factor to this confusion is the myths around the digital coins and the technology behind them that some people take to be true.
In this article, we debunk some of these myths and misconceptions. Let’s dig in:
Cryptocurrencies are for illegal activities
For the longest time, many people have believed cryptocurrencies to be for illegal activities. It is one of the most popular myths around cryptocurrencies.
Several reasons justify this myth. One of them is the Silk Road, a digital black market platform that was once upon a time popular for illegal activities and money laundering.
Bitcoin, a major crypto coin, was majorly used on the platform for transactions and payment. The site is no longer in operation as it was shut down, and the FBI arrested the founder.
Besides the Silk Road, many people believe the coins are illegal due to their anonymity feature. The coins do come with some level of anonymity. However, contrary to popular belief, cryptocurrencies are not completely anonymous.
All crypto transactions are public and transparent. Thanks to blockchain, the technology behind the coins, to some degree, they can be traced.
Cryptocurrencies are not safe
It is no secret that cryptocurrencies’ popularity invited many unscrupulous dealers to the highly unregulated market.
All of a sudden, people and investors were losing millions of dollars to scams and theft. This was enough for people to doubt the coins’ security, leading to the myth they are not safe.
Yes, there have been many cases of theft and scams surrounding cryptocurrencies. Yes, the highly unregulated nature of the market is a major reason for the theft and scams. But, the argument that cryptocurrencies are not safe is a fallacy. They are safe, and many people have benefited from them.
Powered by blockchain, the coins do enjoy high level of security. Decentralization and military-grade encryption assure top-notch security.
Plus, with regulations slowly creeping into the market, many changes can be seen in the market. The regulations are kicking off the unscrupulous dealers and making it difficult for fraudsters to get into the market.
There is only one Blockchain
Blockchain being a new technology, it can be quite confusing. Some people believe there is only one big blockchain catering to all cryptocurrencies. However, this is not true. There is no one blockchain for all.
Different cryptocurrencies operate on different blockchains. By 2019 there were more than 800 blockchains in the market. Besides this, there are different types of blockchains.
- Public blockchain: this type is open to everyone, and there is no one person or entity in control. Anyone can audit and review anything on the blockchain.
- Private blockchain: this type is open to a selected few. It is not open to everyone. It is more centralized as there are those controlling the day to day operations in the network.
- Consortium blockchain: this type is almost similar to private blockchain. However, instead of an individual, there is a group of people in charge.
- Hybrid blockchain: this type combines the features of both public and private blockchain. Members can choose what to share with the public and what to keep private.
Blockchain can solve everything
Blockchain is constantly being marketed as a revolutionary technology that can solve anything and everything.
The technology comes with great benefits, and there are so many areas that it can be applied effectively. Some of the industries already benefiting from the technology include banking, healthcare, education, real estate, supply chain management, and governments.
Indeed, blockchain gives power to people to solve many problems. However, it does not solve all of them.
Cryptocurrencies can be used to avoid taxes
The idea that cryptocurrencies operate in a highly unregulated environment gave birth to this popular myth. That there is no one controlling the currencies, there is no need to pay taxes. They provide the best way to avoid paying taxes. This is a lie.
The IRS considers cryptocurrencies properties for taxes. This has been so since 2014. If you buy, sell, or exchange crypto to generate a profit, you will need to report it in your taxes. If you mine crypto, receive it as payment, or airdrop, you have to report it as ordinary income.
Moving forward, you can expect the relationship between the IRS and cryptocurrency becoming much closer.
While blockchain and cryptocurrencies are certainly revolutionary, many myths surround them. These myths play a huge role in deterring people from the crypto space. Some education can help a lot of people differentiate the truth from myths. We hope this article helps you navigate your way through the world of cryptocurrency.