As the crypto, and to a larger extent, blockchain, world expands - reaching many more industries and specific organizations - it is worth taking the time out to learn more and more about the world of digital currencies.
Although there are numerous corners and crevices of the crypto space that needs to be overturned and explored, today we shall -through various sources - take a look at the top five misconceptions folks have about the crypto.
#1 Digital Currencies Are Only Used for Illicit Activity
One of the oldest and most pervasive myths about digital currencies is that they are most commonly used for illicit activity. While it's true that digital currencies have been used by individuals with nefarious goals in mind, as well as by criminal organizations, the same could be said of any form of money used throughout history.
According to Chainalysis—a company that assists investigators in cryptocurrency crimes with blockchain data analysis—the number of cryptocurrency transactions related to illicit activities fell in 2020 (the latest report) to 0.34% of all cryptocurrency transactions. Out of this small number of transactions, 54% consisted of cryptocurrency scams.
It's important to note that governments and the international community are cracking down on cryptocurrency uses by criminals and organized crime. Many countries have adopted cryptocurrency anti-money laundering and countering the financing of terrorism measures; agencies and teams have been established to combat the use of cryptocurrencies in these illegal activities.2 For instance, in the U.S., the National Cryptocurrency Enforcement Team (NCET) investigates and prosecutes criminal cryptocurrency uses.
#2 Digital Currencies Don't Have Value
Value is a subjective concept—a person, community, or society may place value on an object that another puts in the recycle bin. For example, the first cryptocurrency, Bitcoin, was valued shortly after its launch in 2009 in thousandths of a cent. Its popularity continued to rise, and in 2021, it reached $69,000 per Bitcoin. Its rise in value demonstrates that how an asset is percieved by a society is essential in establishing whether it has value.4
Ethereum, the blockchain ecosystem that powers the cryptocurrency ether (ETH), is the building block for non-fungible tokens, decentralized finance applications, and other technological advancements in ownership of digital assets. ETH may not have the dollar value that Bitcoin does, but its utility and potential give it much more value to a company developing financial products and services that use the Ethereum blockchain and smart contracts.
Investors and enterprises have begun holding cryptocurrencies for uses in finance, investment, venture capital, and many others. For example, Galaxy Digital Holdings is a financial service and investment company with close to $2.9 billion in crypto (digital) assets under management.
#3 Cryptocurrencies Aren't Secure
The key technology behind cryptocurrency is the blockchain. A blockchain is a distributed database secured with encryption techniques and technology that is very difficult to break. As transactions are entered into the blocks in the blockchain, previous transaction information is recorded in the new blocks and encrypted.
The chain continues to build on each previous block, and a community of automated verifiers has to agree that the information recorded in the transactions is valid. The encryption, linked blocks, and consensus mechanisms make it nearly impossible to change information in the blockchain to "steal" cryptocurrency.
The weakness lies in how cryptocurrency is accessed and stored, such as in cryptocurrency wallets or centralized exchanges that facilitate transactions. It is entirely possible to send cryptocurrency from one user to another without worry, but the platforms and software used to store and access it can be hacked or tampered with.
There are some very safe methods you can use to ensure your cryptocurrency is safe. For instance, you can keep your crypto asset keys off the exchanges and in cold storage. When you want to use it, transfer only the amount you want to use to your hot wallet through a secure, wired connection on a non-mobile device like a personal computer.
#4 Digital Currencies Are Bad for the Environment
There is good reason to be concerned about the impact digital currencies have on the environment. Some cryptocurrencies employ a consensus mechanism that uses computational power and large amounts of energy to verify and validate transactions. One token, Bitcoin, has become more popular and valuable as time has passed; large mining operations emerged to take advantage of the rise in popularity and corner the cryptomining market.
Each of these mining farms requires massive amounts of energy to power the mining rigs, adding up to a total network energy consumption equaling that of some small countries.6 However, the environmental impact greatly depends upon the source of energy the mining operations are drawing upon and the impact their energy use has on the power grid.
If the mining operations are drawing most of their electricity from fossil-fuel-powered grids, then the impact is excess carbon pollution for an intangible-yet-valuable item whose future and benefits to humanity are uncertain. On the other hand, if mining operations are powered mostly by sustainable energy, the environmental impact is lower.
Bitcoin mining operators have also purchased previously shut-down fossil fuel plants to power their operations.7 This causes new concerns for environmentalists and countries who are struggling to reduce their carbon footprints in the next few decades.
#5 Cryptocurrencies Are a Scam
Cryptocurrencies have become an accepted means of exchange at many retailers and merchants. People are accepting them in personal transactions, and governments are working to find ways to regulate them. Most digital currencies have no programming, code, or malicious artificial intent that works to take money from you.
However, people have created scams to try and trick you out of your cryptocurrency or money. For example, there have been many initial coin offerings—unregulated fundraising for new cryptocurrency ventures—that turned out to be scams. In other cryptocurrency scams, someone might try to get you to accept unverified transactions, or call you pretending to be government officials and ask you to pay your debts in cryptocurrency.
While it's impossible to eliminate the chance that you will be the victim of a scam, knowledge and awareness can help you reduce the chances of it happening to you.