Unravelling the misconceptions about Bitcoin
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 reaching $20,000 late last 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 in order to participate.
Like that of pizza, you can buy one slice or two, or a pizza as a whole, depending on your appetite.
£100 worth of Bitcoin is still £100 worth of Bitcoin whether it’s BTC 0.00001 or BTC 10. It will still buy you as many books or coffees, for example, if used as a currency.
Similarly, all local currencies break down into parts (e.g. cents or pence), 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 100,000,000 (one hundred million) satoshis in a 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.
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.
Bitcoin has no intrinsic value, so it’s not a currency
Truth: The same statement can be applied to any currency.
If we all stopped believing in the pound (or the dollar or euro or any other currency), it would cease to have any value. Value is in our minds.
This misconception is related to Bitcoin’s volatility
Most local currencies also change in value, but this is spread over several decades and is not noticeable day to day.
By contrast, Bitcoin has witnessed huge price swings in a matter of days or even hours. This can make it seem less like a currency.
But local currencies can also be volatile
Hyperinflation can also affect people’s life savings, sometimes even destroying a currency and a country's economy along with it.
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, if not all, of these hacks, have been the result of preventable security lapses. Luno has never been hacked because we take security seriously.
[Insert new altcoin] will be ‘the next Bitcoin’
Truth: It's very early days.
You may have heard a new cryptocurrency often referred to as an 'altcoin' described as ‘the next Bitcoin’. What does this mean?
It usually implies that the altcoin will reach the same high value as Bitcoin or that it's somehow better than Bitcoin and will become more popular. A common phrase that misses the mark.
<blockquote>Ethereum, for example, serves a different purpose and wasn’t designed to be a currency (although it has come to be used for that.) Many alternative cryptocurrencies represent a new technology or platform. As the name suggests, they are alternatives, not replacements.</blockquote>
Regulation will kill Bitcoin
Truth: Regulation might help increase adoption of Bitcoin.
The world is still much divided about the classification of Bitcoin and cryptocurrencies. The implications of decentralisation have led to many debates around the globe on how it could and should be regulated.
As it is still considered to be very much 'up in the air', many are unsure of the fate of Bitcoin.
<blockquote>Let's not forget: Bitcoin is not controlled by any single person, group, or country. This means it can’t be shut down. </blockquote>
However, it's important to realise that the regulation of cryptocurrencies is not a death knell. Even if one country decides to ban the use of it, it won’t stop the rest of the world from continuing. It would also be virtually impossible for regulators to monitor every person in a country at all times, especially with privacy measures in place. Cost alone would be prohibitive.
Unless there was a coordinated effort by every country in the world regulation is not a serious threat. Even then, this is unlikely considering how many governments have responded positively and encouraged Bitcoin.
If anything, regulation will benefit the community. Some countries have been and may be in the future, cautious with it. Others have yet to put in place any regulation or don’t have sufficient measures in place to protect users.