Bitcoin is one of the most groundbreaking inventions of the 21st century. Its greatest challenge is to make itself known, despite the tremendous technical complexity that surrounds it. In this article, we will define what is bitcoin while disassembling a series of myths, inconsistencies, and misinformation that have been woven about the cryptocurrency.
First, we will review the main differences between Bitcoin and Blockchain. Then, we will describe the central myths that exist around Bitcoin and cryptocurrencies in general.
To start with, it is necessary to differentiate two concepts, which in their nature are interconnected: Bitcoin and Blockchain.
Bitcoin, the digital currency that everyone talks about, works under Blockchain technology. Precisely, the Bitcoin network was the first to use that distributed information registry, called Blockchain. Therefore, Bitcoin is the first public blockchain to exist.
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Taking the same principles from Bitcoin, developers around the world create a different kind of cryptocurrencies, practically, every day. After more than ten years since the invention of Bitcoin (and consequently, of Blockchain technology), there are more than 5000 cryptocurrencies and tokens projects, which use Blockchain technology.
In fact, due to its immutability and transparency features, blockchain has several applications in multiple areas, for example, notarial systems, voting systems, health systems, distribution systems, etc.
That being said, let’s enter more deeply into the subject.
To put it briefly, bitcoin is a digital currency that is not issued by any government. By design, Bitcoin is a secure and modern alternative to exchange value through the internet.
Who regulates it? Its public protocol, practically unalterable. Despite its virtual nature, no one can counterfeit bitcoins or claim to have more bitcoins than it has.
How much does a bitcoin cost? As of today, 1 Bitcoin (BTC) is trading at $8,300. Anyone can buy 1 BTC, 0.1 BTC, 0.0004 BTC, or the amount they want and store it in a digital wallet. For that, there are exchanges like BitcaribeX.
It is important to emphasize that bitcoin does not have a physical representation, such as bills and coins. It only exists in the virtual world.
Let’s start with the first myth. Bitcoin has an increasing acceptance around the world. Its price has experienced a sudden increase, incomparable with any other type of asset.
Some analysts estimate that the value of bitcoin will continue to rise (with its ups and downs) until it reaches unsuspected levels. For that reason, many investors consider it as the new digital gold and try to accumulate as many bitcoins as they can, in the hope of generating high returns or even wealth.
The scarce character of Bitcoin makes it even more attractive. The issuance of the cryptocurrency is fixed and unchanged. Approximately every 10 minutes, 12.5 BTC is generated in the network. Of the 21 million bitcoin that can never exist, there are only 3 million available to be mined.
Is Bitcoin a fast money scheme? The answer is a definite no.
In this roller coaster of persistent volatility in the price of the currency, many people have managed to obtain high returns by buying it at a “low” price and then exchanging for fiat money (dollars, euros, pesos) when it is market price gets higher.
However, other people have bought bitcoins, at “wrong times,” resulting in significant losses and even incalculable debts.
Sometimes these bad experiences of inadvertent investments become the following fallacious syllogism:
James earned $10,000 in a month after investing in Bitcoin
Effective investments are a scheme to make quick money
Bitcoin is a fast money scheme.
It is not for us to predict the future or try to guess if, in some years, Bitcoin will, in effect, exceed $100,000 or even seven figures, as many predict.
Bitcoin is much more than its market price. Among the advantages of Bitcoin stands out:
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Many vehemently claim that bitcoin is a bubble. They use the 2017 scenario as an example when it went from $1,000 to $20,0000. A few months later, it fell to $3,000.
Bubbles usually occur when the masses disproportionately turn their interest to a promising idea, but worthless one. When the market pinches their forearms, and they wake up from sleep, panic sales soar. That is when prices abruptly fall (ups, the bubble explodes).
Cryptocurrency detractors usually argue that being a digital asset, it does not have tangible support. Consequently, bitcoin comes from the air, and therefore, its value is 100% speculative. Ergo, bitcoin is a bubble.
However, reviewing the evolution of the bitcoin price action gives us lights to understand its price trends over time.
Bitcoin is not a bubble, and if it were, it would be the only bubble that explodes many times. What a spiritual power.
Unlike tulips, Bitcoin offers a real contribution: an international payment system and a secure digital currency.
It would be worth reconsidering and stopping to think about the origin of “value,” where does it reside? Let’s add to this idea the fact that we are living in an unstoppable digital era, which presents us with radical paradigm changes.
We can find some lights in the book The Tipping Point (Gladwell, 2000), when the author explains that, unlike the industrial era, in the digital age, the primary raw materials will cease to be oil or metals. The basic raw material of the digital age is data, knowledge, and innovation. To some extent, intangible issues.
After the rise of Bitcoin, the markets begin to coin the term digital assets, to define the characteristics of this new type of assets.
The idea that Bitcoin is a pyramid scheme is the most disproportionate of all.
First, let’s define what a pyramid scheme is:
“…a pyramid scheme is a business scheme in which participants recommend and attract (refer) to more customers with the aim that new participants produce benefits to the original participants. A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products.”(Wikipedia, 2019).
Bitcoin, per se, is not a pyramid scheme for various reasons.
However, it is true that some scammers have taken advantage of the cryptocurrency boom to set up large-scale scams. These cases have unfairly clouded the legitimacy of an idealistic project and unprecedented in history.
To say that Bitcoin is a pyramid is merely incorrect or inaccurate. Many pyramid scams use the US dollar as a medium of exchange, but this does not make the US dollar a pyramid scam.
Bitcoin is a currency that, at the structural level, cannot be regulated or prohibited. It is a decentralized currency, and its emission and transmission are not centralized or controlled by any particular entity. No one can end Bitcoin.
Despite this, and due to the boom it has had, many governments have been forced to legislate about it. Some consider it an asset whose possession involves taxes. Others, a digital currency, and, in some cases, it is regulated as a commodity. Bitcoin’s regulatory uncertainty, added to its pseudo-anonymous nature, has unfortunately been exploited for illicit purposes.
Despite these realities, a study led by Chainalysis, a company that provides “data and blockchain analysis to government agencies, exchanges, and financial institutions in 40 countries,” determined that only 1% of the volume of Bitcoin transactions ($515 million) in 2019 comes from illegal activities. In 2012, it was 7%.
In contrast, according to the United Nations Office on Drugs and Crime, “the estimated amount of money laundered worldwide in a year is 2 to 5% of world GDP, or $800 billion – $2 trillion in US dollars”.
In conclusion, about myth number 4 (Bitcoin is mainly used by criminals), we can say that it is false. The volume of illegal transactions through Bitcoin has dropped. It is tiny compared to the United Nations figure cited above.
Bitcoin is a world in itself. If you share that same interest in the cryptocurrencies as we do, we invite you to read other articles from the Bitcaribe blog.